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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1996
Commission file number 1-82
PHELPS DODGE CORPORATION
(a New York corporation)
13-1808503
(I.R.S. Employer Identification No.)
2600 N. Central Avenue, Phoenix, AZ 85004-3089
Registrant's telephone number: (602) 234-8100
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
------------------- ---------------------
Common Shares, $6.25 par value per share New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days. Yes x No .
----- -----
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [x]
The aggregate market value of Common Shares of the issuer held by nonaffiliates
at March 6, 1997, was approximately $4,646,956,000.
Number of Common Shares outstanding at March 6, 1997: 64,429,200 shares.
Documents Incorporated by Reference:
Document Location in 10-K
-------- ----------------
Proxy Statement for 1997 Annual Meeting Part III
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<PAGE>
PHELPS DODGE CORPORATION
Annual Report on Form 10-K
For the Year Ended December 31, 1996
Table of Contents
-----------------
Part I.
Items 1. and 2. Business and Properties
Phelps Dodge Mining Company
Properties, Facilities and Production
Copper Operations
Phelps Dodge Copper Production Data, by Source
Phelps Dodge Metal Production and Deliveries
Phelps Dodge Smelters and Refinery - Production
Other Mining Operations and Investments
Exploration & Development
Ore Reserves
Ownership of Real Property
Sales and Competition
Prices, Supply and Consumption
Costs
Energy Supplies
Environmental and Other Regulatory Matters
Labor Matters
Phelps Dodge Industries
Operations
Ownership of Real Property
Competition and Markets
Raw Materials
Energy Supplies
Environmental Matters
Labor Matters
Research and Development
Other Environmental Matters
Item 3. Legal Proceedings
Item 4. Submission of Matters to a Vote of Security Holders
Executive Officers of Phelps Dodge Corporation
Part II.
Item 5. Market for the Registrant's Common Equity and Related
Stockholder Matters
Item 6. Selected Financial Data
Item 7. Management's Discussion and Analysis
Management's Discussion and Analysis
Results of Phelps Dodge Mining Company
Results of Phelps Dodge Industries
Other Matters Relating to the Statement of Consolidated Operations
Changes in Financial Condition; Capitalization
Capital Outlays
Inflation
Dividends and Market Price Ranges
Quarterly Financial Data
Item 8. Financial Statements and Supplementary Data
Index to Consolidated Financial Statements
Report of Independent Accountants on Financial Statement Schedule
Report of Management
Report of Independent Accountants
Statement of Consolidated Income
Consolidated Balance Sheet
Consolidated Statement of Cash Flows
Consolidated Statement of Common Shareholders' Equity
Notes to Consolidated Financial Statements
Financial Data by Business Segment
Financial Data by Geographic Area
Item 9. Disagreements on Accounting and Financial Disclosure
Part III.
Item 10. Directors and Executive Officers of the Registrant
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners and Management
Item 13. Certain Relationships and Related Transactions
Part IV.
Item 14. Exhibits, Financial Statement Schedule and Reports on Form 8-K
Valuation and Qualifying Accounts and Reserves
Signatures
<PAGE>
PHELPS DODGE CORPORATION
1996 Annual Report on Form 10-K
Part I
Items 1. and 2. Business and Properties
- ----------------------------------------
Phelps Dodge Corporation, incorporated under the laws of New York in
1885, is among the world's largest producers of copper. In 1996, the Corporation
produced 770,400 tons of copper for its own account from its worldwide mining
operations and an additional 162,900 tons of copper for the accounts of minority
interest owners. Gold, silver, molybdenum, copper chemicals and sulfuric acid
are also produced as by-products of the Corporation's copper operations.
Production of copper for the Corporation's own account from its U.S.
operations constituted more than 25 percent of the copper mined in the United
States in 1996. Much of the Corporation's U.S. copper production, after
electrowinning or smelting and refining, together with additional copper
purchased from others, is used by the Corporation to produce continuous-cast
copper rod, the basic feed for the electrical wire and cable industry. The
Corporation is the world's largest producer of copper rod.
Phelps Dodge's international mining interests include Candelaria, its
major copper mine in Chile that commenced operations in October 1994, and other
operations and investments in Chile, Peru and South Africa. These operations
produce a variety of metals and minerals including copper, gold, fluorspar,
silver, lead and zinc. Phelps Dodge also explores for metals and minerals
throughout the world.
The Corporation also manufactures engineered products principally for
the transportation, energy and telecommunications sectors worldwide through a
group of industrial companies. Specialty chemicals are produced through
Columbian Chemicals Company which is among the world's largest producers of
carbon black, a reinforcing agent in natural and synthetic rubber that increases
the service life of tires, hoses, belting and other products, for the rubber
industry. It also produces specialty carbon black for other industrial
applications such as pigments for printing, coatings, plastics and other
non-rubber applications. Accuride Corporation is the largest North American
manufacturer of steel wheels and rims for medium and heavy trucks, trailers and
buses. The Corporation produces wire and cable products and specialty conductors
at U.S. and international operations through Phelps Dodge Magnet Wire Company
and Phelps Dodge International Corporation. Phelps Dodge Magnet Wire Company,
the world's largest manufacturer of magnet wire, produces magnet wire and other
copper products for sale principally to original equipment manufacturers for use
in electrical motors, generators, transformers and other products. Phelps Dodge
International Corporation manufactures telecommunication and energy cables and
specialty conductors.
The discussion of the business and properties of the Corporation
contained below in Items 1 and 2 of this report is based on the Corporation's
two business segments: (i) Phelps Dodge Mining Company and (ii) Phelps Dodge
Industries. These are more fully described in Note 20 to the Consolidated
Financial Statements which also sets forth financial information about such
segments.
(i) The Phelps Dodge Mining Company segment includes the
Corporation's worldwide copper operations from mining through rod
production, marketing and sales, other mining operations and
investments, and worldwide mineral exploration and development
programs.
(ii) The Phelps Dodge Industries segment includes the Corporation's
specialty chemicals operations, its wheel and rim business, and
its wire and cable operations.
Information about sales and earnings of international operations of the
Corporation is also included in Note 20 to the Consolidated Financial
Statements.
Unless the context otherwise requires, "Corporation" and "Phelps Dodge"
as used in this report mean Phelps Dodge Corporation and its consolidated
subsidiaries. In addition, all references to tons are to short tons and
references to ounces are to troy ounces.
The number of persons employed by the Corporation on December 31, 1996,
was 16,033.
PHELPS DODGE MINING COMPANY
- ---------------------------
Phelps Dodge Mining Company is an international business comprising a
group of companies involved in vertically integrated copper operations including
mining, concentrating, electrowinning, smelting and refining, rod production,
marketing and sales, and related activities. Copper is sold primarily to others
as rod, cathode or concentrates, and as rod to the Phelps Dodge Industries
segment. In addition, Phelps Dodge Mining Company at times smelts and refines
copper and produces copper rod for others on a toll basis. Phelps Dodge Mining
Company also produces gold, silver, molybdenum and copper chemicals as
byproducts, and sulfuric acid from its air quality control facilities. This
segment also includes the Corporation's other mining operations and investments
(including fluorspar, silver, lead and zinc operations) and its worldwide
mineral exploration and development programs.
Properties, Facilities and Production
- -------------------------------------
Copper Operations
-----------------
Phelps Dodge produces copper concentrates from open-pit mines and
concentrators located in Morenci, Arizona; Santa Rita, New Mexico; and near
Copiapo, Chile. The Corporation also produces copper concentrates from two
underground mines and a concentrator located near Copiapo through Compania
Contractual Minera Ojos del Salado (Ojos del Salado), a wholly owned Chilean
subsidiary of Phelps Dodge Corporation. Minor amounts of copper precipitates,
which like concentrates must be smelted and then electrolytically refined, are
produced at various locations. In addition, the Corporation produces electrowon
copper cathode at solution extraction/electrowinning (SX/EW) operations in
Morenci, Arizona; Santa Rita, New Mexico; and Tyrone, New Mexico.
The Morenci complex in southeastern Arizona comprises an open-pit mine,
two concentrators, three solution extraction facilities and two electrowinning
tankhouses, one of which is the largest in the world. The Corporation owns an 85
percent undivided interest in the Morenci complex; the remaining 15 percent
interest is owned by Sumitomo Metal Mining Arizona, Inc. (Sumitomo), a jointly
owned subsidiary of Sumitomo Metal Mining Co., Ltd. and Sumitomo Corporation.
Phelps Dodge is the operator of the Morenci properties. Sumitomo takes in kind
its share of Morenci production. The Morenci complex is the largest copper
producing operation in North America.
Litigation concerning the allocation of available water supplies, land
use and other legal proceedings could adversely affect the water supplies for
the Morenci operation and other prospective producing properties of the
Corporation in Arizona. See "Legal Proceedings" for information concerning the
status of these proceedings.
The open-pit copper mine, concentrator and SX/EW facility in Santa
Rita, New Mexico, and a smelter in Hurley, New Mexico, are owned by Chino Mines
Company (Chino), a general partnership in which the Corporation holds a
two-thirds partnership interest. Heisei Minerals Corporation (Heisei), a
subsidiary of Mitsubishi Corporation and Mitsubishi Materials Corporation, owns
the remaining one-third interest in Chino. Each partner purchases its
proportionate share of Chino's copper production each month. Phelps Dodge
manages the Chino operations.
Candelaria, Phelps Dodge's newest mine, is located near Copiapo in the
Atacama Desert of northern Chile. Phelps Dodge Mining Company completed
construction and commenced operations at Candelaria in October 1994, and
achieved full production in 1995. The project presently consists of an open-pit
mine, concentrator, port and associated facilities. Phelps Dodge owns an 80
percent interest in Compania Contractual Minera Candelaria (Candelaria) through
PD Candelaria, Inc., a wholly owned subsidiary of the Corporation, with a
jointly owned subsidiary of Sumitomo Metal Mining Co., Ltd. and Sumitomo
Corporation owning the remaining 20 percent interest. On May 1, 1996, the
Corporation announced plans to expand concentrator throughput at Candelaria. At
full capacity, the $337 million expansion will result in annual copper
production of 400 million to 450 million pounds during the first few years of
the post-expansion mine life; the average ore grade is expected to drop, with a
corresponding decrease in production, in subsequent years. The expansion will
include increased mining activity, the installation of a second semi-autogenous
(SAG) mill line and new and expanded concentrating facilities, and the addition
of more than 200 employees. Construction began in the third quarter of 1996,
with new production scheduled to commence by mid-1998. As a result of the
expansion, the estimated mine life of Candelaria will be reduced from 35 years
of production to 19 years.
The Tyrone mine-for-leach operation near Silver City, New Mexico, is
wholly owned by Phelps Dodge Corporation. The SX/EW plant at Tyrone is owned and
operated by Burro Chief Copper Company (Burro Chief), a wholly owned subsidiary
of the Corporation. Burro Chief also operates the SX/EW plant at Santa Rita.
Phelps Dodge is the leading producer of copper using the SX/EW process.
In 1996, the Corporation produced a total of 408,000 tons of cathode copper at
its SX/EW facilities, compared with 364,200 tons in 1995 and 325,800 tons in
1994. The SX/EW method is a cost-effective process of extracting copper from
certain types of ores. As used by the Corporation in conjunction with its
conventional concentrating, smelting and refining, SX/EW is a major factor in
its continuing efforts to maintain internationally competitive costs. Total
annual capacity of electrowon copper cathode production is currently 250,000
tons at the Morenci complex, 65,000 tons at the Santa Rita plant and 75,000 tons
at the Burro Chief plant near Tyrone. The Corporation expects to operate the
Burro Chief plant for at least the next 10 years. Exploration continues in an
effort to identify further resources.
The Corporation owns and operates a smelter in Hidalgo County, New
Mexico, and, through Chino Mines Company, owns a two-thirds interest in the
Chino smelter in Hurley, New Mexico. Phelps Dodge smelts virtually all of its
share of its U.S. concentrate production and occasionally some concentrate
production from Candelaria, and serves as a custom smelter for other mining
companies. It also refines its share of its anode copper production. In
addition, the Corporation purchases concentrates to keep its smelters operating
at efficient levels. Such purchases are expected to continue whenever the
smelting capacity of the Hidalgo and Chino smelters exceeds Phelps Dodge Mining
Company's share of its concentrate production.
The Corporation's refinery in El Paso, Texas, is one of the world's
largest copper refineries. During 1996, the refinery operated at capacity
producing just over 450,000 tons of electrolytic copper. This capacity is
sufficient to refine all copper produced by the Corporation for its account at
its two operating smelters as well as anodes refined for other customers on a
toll basis. The El Paso refinery also produces gold, silver and copper sulfate
and recovers small amounts of selenium, platinum and palladium as by-products of
the copper refining process.
Phelps Dodge is the world's largest producer of continuous-cast copper
rod, the basic feed for the electrical wire and cable industry. Most of the
Corporation's refined copper, and additional copper purchased by the
Corporation, is converted into rod at its continuous-cast copper rod facilities
in El Paso, Texas, and Norwich, Connecticut. The two plants have a collective
annual capacity to convert more than 700,000 tons of refined copper into rod and
other refined copper products. During 1996, combined production of rod and other
refined copper products from the two plants was 711,400 tons.
The following tables give the Corporation's worldwide copper production
by source for the years 1992 through 1996; aggregate production and delivery
(sales) data for copper, gold, silver, molybdenum and sulfuric acid from these
sources for the same years; annual average copper prices; and production from
the Corporation's smelters and refinery. Major changes in operations during the
five-year period included (1) increases in capacity in 1992 and 1995 of the
SX/EW facilities at Morenci and the 1992 expansion of the Burro Chief plant at
Tyrone; (2) indefinite suspension of concentrator operations at Tyrone in
February 1992; (3) at Morenci, completion of the Northwest Extension in 1992 and
the startup of the Southside project in 1995; (4) expansion of Chino's SX/EW
plant at Santa Rita in April 1993; (5) severe flooding problems at Ojos del
Salado's Santos mine in 1993 that resulted in reduced production of copper
concentrate; (6) the sale of the Corporation's interest in the Santa Gertrudis
gold mine in the 1994 second quarter; and (7) commencement of operations at
Candelaria in the 1994 fourth quarter and achievement of full production in
1995.
<PAGE>
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PHELPS DODGE COPPER PRODUCTION DATA, BY SOURCE
- ----------------------------------------------
(thousand tons)
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
MATERIAL MINED (a)
Morenci 297,688 261,264 240,700 219,032 203,456
Tyrone 102,936 83,935 62,067 49,387 32,407
Chino 122,939 115,821 105,057 108,568 103,081
Candelaria 83,962 72,068 17,842 - -
Ojos del Salado 1,628 1,855 1,712 1,438 1,564
------- ------- ------- ------- -------
Total material mined 609,153 534,943 427,378 378,425 340,508
Less minority participants' shares 102,421 92,211 74,692 69,044 64,878
------- ------- ------- ------- -------
Net Phelps Dodge share 506,732 442,732 352,686 309,381 275,630
======= ======= ======= ======= =======
MILL ORE MINED
Morenci 47,136 44,284 45,240 46,990 46,562
Tyrone - - - - 1,293
Chino 20,061 17,026 17,811 17,436 17,160
Candelaria 11,603 11,439 2,685 - -
Ojos del Salado 1,506 1,596 1,536 1,314 1,513
------- ------- ------- ------- -------
Total mill ore mined 80,306 74,345 67,272 65,740 66,528
Less minority participants' shares 16,078 14,606 13,260 12,861 12,704
------- ------- ------- ------- -------
Net Phelps Dodge share 64,228 59,739 54,012 52,879 53,824
======= ======= ======= ======= =======
GRADE OF ORE MINED - PERCENT COPPER
Morenci 0.70 0.64 0.65 0.67 0.67
Tyrone - - - - 0.69
Chino 0.67 0.76 0.69 0.73 0.68
Candelaria 1.40 1.88 1.27 - -
Ojos del Salado 1.57 1.40 1.38 1.43 1.77
RECOVERABLE COPPER (b)
Morenci:
Concentrate 247.1 211.6 217.3 233.3 226.5
Electrowon 262.5 225.7 190.1 170.8 162.8
Tyrone:
Concentrate and precipitate 3.7 4.3 4.2 6.0 8.5
Electrowon 76.0 70.4 68.9 73.5 70.2
Chino:
Concentrate and precipitate 99.0 100.6 92.7 95.6 94.9
Electrowon 69.5 68.1 66.8 63.9 57.3
Candelaria:
Concentrate 150.8 165.7 31.0 - -
Ojos del Salado:
Concentrate 21.3 19.6 18.6 16.7 24.4
Bisbee precipitate and
miscellaneous 3.4 1.6 3.6 1.6 1.4
------- ------- ------- ------- -------
Total recoverable copper 933.3 867.6 693.2 661.4 646.0
Less minority participants' shares 162.9 154.9 120.4 113.7 109.0
------- ------- ------- ------- -------
Net Phelps Dodge share 770.4 712.7 572.8 547.7 537.0
======= ======= ======= ======= =======
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
PHELPS DODGE METAL PRODUCTION AND DELIVERIES (b)
- ------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
COPPER (THOUSAND TONS)
Total production 933.3 867.6 693.2 661.4 646.0
Less minority participants'
shares 162.9 154.9 120.4 113.7 109.0
------- ------- ------- ------- -------
Net Phelps Dodge share 770.4 712.7 572.8 547.7 537.0
======= ======= ======= ======= =======
Deliveries (c) 771.6 696.6 560.6 543.9 537.7
======= ======= ======= ======= =======
GOLD (THOUSAND OUNCES) (d)
Total production 129 151 93 85 105
Less partners' shares 26 31 28 29 38
------- ------- ------- ------- -------
Net Phelps Dodge share 103 120 65 56 67
======= ======= ======= ======= =======
Deliveries (c) 125 125 47 54 59
======= ======= ======= ======= =======
SILVER (THOUSAND OUNCES) (d)
Total production 2,636 2,739 1,627 1,387 1,403
Less partners' shares 564 545 360 273 315
------- ------- ------- ------- -------
Net Phelps Dodge share 2,072 2,194 1,267 1,114 1,088
======= ======= ======= ======= =======
Deliveries (c) 2,359 1,985 1,039 1,085 1,083
======= ======= ======= ======= =======
MOLYBDENUM (THOUSAND POUNDS)
Total production 2,427 2,024 969 1,200 1,729
Less minority participants'
shares 501 507 226 394 528
------- ------- ------- ------- -------
Net Phelps Dodge share 1,926 1,517 743 806 1,201
======= ======= ======= ======= =======
Deliveries 2,141 1,328 698 905 1,129
======= ======= ======= ======= =======
SULFURIC ACID
(THOUSAND TONS) (e)
Total production 1,235.3 1,252.6 1,276.7 1,379.4 1,230.0
Less minority participant's
share 191.8 181.3 191.5 193.9 184.4
------- ------- ------- ------- -------
Net Phelps Dodge share 1,043.5 1,071.3 1,085.2 1,185.5 1,045.6
======= ======= ======= ======= =======
Deliveries 464.0 554.3 685.2 718.4 733.7
======= ======= ======= ======= =======
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
COMEX COPPER PRICE (f) $ 1.06 1.35 1.07 0.85 1.03
- --------------------------------------------------------------------------------
PHELPS DODGE SMELTERS AND REFINERY - PRODUCTION
- -----------------------------------------------
Smelters (g)
Total copper (thousand
tons) 428.8 422.5 411.7 376.7 329.2
Less minority
participant's share 62.9 58.6 60.0 51.0 49.3
------- ------- ------- ------- -------
Net Phelps Dodge share 365.9 363.9 351.7 325.7 279.9
======= ======= ======= ======= =======
Refinery (h)
Copper (thousand tons) 450.1 453.0 453.8 432.4 388.1
Gold (thousand ounces) 114.4 145.4 118.0 85.8 78.8
Silver (thousand ounces) 3,142.5 3,441.5 2,672.3 3,144.7 2,377.0
- --------------------------------------------------------------------------------
Footnotes to the preceding tables:
(a) Includes material mined for leach operations.
(b) Includes smelter production from custom receipts and fluxes as
well as tolling gains or losses.
(c) Excludes sales of purchased copper, silver and gold.
(d) Includes the Santa Gertrudis gold project, which was operated by
Phelps Dodge from 1991 through the 1994 second quarter.
(e) Sulfuric acid production results from smelter air quality control
operations; deliveries do not include internal usage.
(f) New York Commodity Exchange annual average spot price per pound -
cathodes.
(g) Includes production from purchased concentrates and copper
smelted for others on toll.
(h) Includes production from purchased material and copper refined
for others on toll.
- ----------------------------------------------------------------------------
Other Mining Operations and Investments
---------------------------------------
Phelps Dodge Mining (Pty.) Limited, a wholly owned subsidiary of Phelps
Dodge Corporation, operates the Witkop fluorspar mine and mill in the western
Transvaal, South Africa. The operation produces acid-grade fluorspar
concentrates for customers in South Africa, the United States, Europe, Australia
and Asia. During 1996, the plant expanded its metallurgical-grade flotation
capacity, increasing metallurgical-grade production by 15,000 metric tons
annually.
Black Mountain Mineral Development Company (Pty.) Limited operates a
lead-silver-zinc-copper mine and concentrator in the Cape Province of South
Africa. The operation is owned 44.6 percent by Phelps Dodge and 55.4 percent by
the Gold Fields of South Africa group, who manages the operation. Phelps Dodge
accounts for its investment in Black Mountain on the equity basis. Phelps Dodge
received $6.0 million, $5.7 million and $2.9 million in dividend payments from
Black Mountain in 1996, 1995 and 1994, respectively. The 1994 dividend was the
first received by the Corporation from Black Mountain since 1991.
Phelps Dodge owns a 13.9 percent interest in Southern Peru Copper
Corporation (SPCC), which operates two copper mines, two concentrators, an SX/EW
facility, a smelter and a refinery in Peru. The Corporation's interest in SPCC
decreased from the 16.25 percent it held at the end of 1994 as a result of an
exchange offering of SPCC common shares consummated in 1996. SPCC's other
shareholders are ASARCO Incorporated with a 54.1 percent interest and the Cerro
Trading Company with a 17.8 percent interest. The common stock held by Phelps
Dodge, ASARCO and Cerro Trading Company is closely held and is not registered
for trading. The remaining 14.2 percent interest is publicly held. SPCC's
results are not included in Phelps Dodge's earnings because the Corporation
accounts for its investment in SPCC on the cost basis. During 1996, Phelps Dodge
received dividend payments of $16.4 million from SPCC, compared with $13.6
million in 1995 and $3.5 million in 1994.
Exploration & Development
- -------------------------
Phelps Dodge Exploration Corporation's primary objectives are to
increase copper reserves through discoveries, acquisitions and joint ventures
and, where appropriate, to diversify into other metals, minerals and geographic
areas. Phelps Dodge Exploration Corporation operates offices in Australia,
Canada, Chile, Indonesia, Mexico, Peru, the Philippines, South Africa, Thailand,
the United States and Zambia. During 1996, a new office was established in
Brazil.
The 1996 exploration program continued to place emphasis on the search
for and delineation of large scale copper, gold and other base metal deposits.
Phelps Dodge expended $70.7 million on worldwide exploration during 1996,
compared with $60.3 million in 1995 and $40.0 million in 1994. Approximately 47
percent of the 1996 expenditures occurred in the United States, compared with 32
percent in 1995 and 55 percent in 1994. The balance of exploration expenditures
was spent principally in Chile, Canada, Peru, Mexico, Australasia and Zambia.
During 1996, continuing exploration efforts at existing Phelps Dodge
copper operations outlined significant additional copper resources. In the
Morenci area, exploration and definition drilling continued during the year at
the Garfield deposit. The Garfield resource currently is estimated to contain
approximately 1 billion tons of leach material at a grade of 0.27 percent
copper.
Other developments in Arizona included the completion of a resource and
feasibility study that evaluated the re-opening of the Ajo property that
discontinued operations in 1985. Studies incorporating the use of current
technologies for a new concentrator facility indicate that the property may have
significant economic potential. This 150 million ton sulfide resource contains
1.5 billion pounds of copper.
In New Mexico, additional mine-for-leach ore reserves were delineated
in the Tyrone area during 1996. The leachable material is both oxide and sulfide
copper mineral and is estimated to total 300 million tons at 0.32 percent
copper.
A feasibility study and environmental permitting were initiated to
advance development of the Dos Pobres deposit in the Safford District in eastern
Arizona. The Dos Pobres deposit contains a total of 285 million tons of leach
material with a grade of 0.39 percent copper. Additionally, the Dos Pobres
deposit contains 330 million tons of concentrator material with a grade of 0.65
percent copper.
Project permitting continued at the Seven-Up Pete joint venture's
McDonald gold project near Lincoln, Montana, with the regulatory review process
expected to be complete in 1998. Phelps Dodge Corporation owns a 72.25 percent
interest in the Seven-Up Pete joint venture and Canyon Resources Corporation of
Golden, Colorado, holds the remaining 27.75 percent interest.
Internationally, Phelps Dodge Exploration Corporation is examining
mine-for-leach opportunities in Peru and is earning its way into a 55 percent
interest at the Cerro Lindo project in that country (through exploration
expenditures) where a geologic resource of approximately 60 million tons of
massive sulfide grading 1.5 percent copper and 2 percent zinc has been
identified.
Phelps Dodge continues to evaluate the Piedras Verdes property in
Sonora, Mexico. In Zambia, the Corporation continues to evaluate the Lumwana
region.
<PAGE>
Ore Reserves
- ------------
Ore reserves at each of Phelps Dodge's active copper operations and at
Dos Pobres have been estimated as follows:
- --------------------------------------------------------------------------------
Estimated at December 31, 1996
------------------------------
Milling Leaching
Reserves Reserves Phelps
----------------- ----------------- Dodge
Million % Million % Interest
Tons Copper Tons Copper (%)
---- ------ ---- ------ -----
Morenci 406.9 0.68 1,364.2 0.27 85.0
Chino 389.1 0.62 560.5 0.30 66.7
Tyrone - - 413.3 0.34 100.0
Candelaria * 441.4 0.95 - - 80.0
Dos Pobres 330.0 0.65 285.0 0.39 100.0
Ojos del Salado * 13.4 1.30 - - 100.0
- ----------------
* The Candelaria and Ojos del Salado deposits also contained,
respectively, 0.006 ounces and 0.008 ounces of gold per ton in
1996 and 0.007 ounces and 0.008 ounces of gold per ton,
respectively, in 1995.
Estimated at December 31, 1995
------------------------------
Milling Leaching
Reserves Reserves Phelps
---------------- ---------------- Dodge
Million % Million % Interest
Tons Copper Tons Copper (%)
---- ------ ---- ------ -----
Morenci 430.5 0.72 1,094.5 0.31 85.0
Chino 297.5 0.67 662.6 0.24 66.7
Tyrone - - 170.6 0.36 100.0
Candelaria * 384.4 1.07 - - 80.0
Dos Pobres 330.0 0.65 285.0 0.39 100.0
Ojos del Salado * 13.7 1.32 - - 100.0
- ----------------
* The Candelaria and Ojos del Salado deposits also contained,
respectively, 0.006 ounces and 0.008 ounces of gold per ton in
1996 and 0.007 ounces and 0.008 ounces of gold per ton,
respectively, in 1995.
- --------------------------------------------------------------------------------
The Corporation's estimated share of aggregate ore reserves at the
above named properties at December 31 is as follows:
- --------------------------------------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
Milling reserves (billion tons) 1.3 1.2 1.0 0.9 1.0
Leaching reserves (billion tons) 2.2 1.8 1.7 1.2 1.0
Commercially recoverable copper
(million tons) 12.1 12.3 10.6 10.1 10.5
- --------------------------------------------------------------------------------
Ore reserves at each of Phelps Dodge's other mining operations and
investments at year-end 1996 are estimated as follows:
- --------------------------------------------------------------------------------
Ore Phelps
Reserves Silver % Dodge
Million Ounces % % % Calcium Int.
Tons Per Ton Copper Lead Zinc Fluoride (%)
------ -------- ------ ---- ---- ------- ----
Black Mountain
Broken Hill
deposit 10.1 2.4 0.53 5.9 2.9 - 44.60
Southern Peru
Copper
Corporation * 1,731.9 - 0.68 - - - 13.90
Phelps Dodge
Mining Limited 20.0 - - - - 17.30 100.00
- ----------------
* Southern Peru Copper Corporation deposits also contain approximately
665 million tons of leach material at a grade of 0.22 percent copper.
- --------------------------------------------------------------------------------
Ore reserves are those estimated quantities of ore that, under
conditions anticipated by the Corporation, may be profitably mined and processed
for extraction of their constituent values. Estimates of the Corporation's
reserves are based upon the Corporation's engineering evaluations of assay
values derived from samplings of drill holes and other openings. In the
Corporation's opinion, the sites for such samplings are spaced sufficiently
close and the geologic characteristics of the deposits are sufficiently well
defined to render the estimates reliable. Stated tonnages and grades of ore do
not reflect waste dilution in mining or losses in processing. Leaching reserves
include copper estimated to be recoverable from leach reserves remaining to be
mined at Morenci, Chino, Tyrone and Dos Pobres. Commercially recoverable copper
includes copper estimated to be recoverable from milling and leaching reserves
and from existing stockpiles of leach material at Morenci, Chino, Tyrone and Dos
Pobres.
<PAGE>
The Corporation holds various other properties containing mineral
deposits that it believes could be brought into production should market
conditions warrant. Permitting and significant capital expenditures would be
required before operations could commence at these properties. The deposits are
estimated to contain the following mineralization as of December 31, 1996:
- --------------------------------------------------------------------------------
Sulfide Material Leach Material Phelps
---------------- -------------- Gold Dodge
Million % Million % Ounces Interest
Location Tons Copper Tons Copper Per Ton (%)
-------- ----- ------ ----- ------ ------- ---
Ajo Arizona 150 0.56 - - - 100.00
Cochise Arizona - - 210 0.40 - 100.00
Copper Basin Arizona 70 0.53 - - - 100.00
Coronado Arizona 180 0.69 310 0.29 - 85.00
Garfield Arizona - - 1,000 0.27 - 85.00
Lone Star Arizona - - 1,600 0.38 - 100.00
Sanchez Arizona - - 230 0.29 - 100.00
San Juan Arizona - - 270 0.28 - 100.00
Western Copper Arizona 530 0.55 500 0.31 - 85.00
McDonald Montana - - 205 - 0.025 72.25
Piedras Verdes Mexico - - 150 0.41 - 70.00
Black Mountain * South Africa 20 - - - - 44.60
- ------------------
* The Black Mountain deposit contains an estimated 6.3 percent lead,
1.16 percent zinc, 0.71 percent copper and 1.81 ounces of silver
per ton.
- --------------------------------------------------------------------------------
Ownership of Real Property
- --------------------------
The Corporation owns substantially all the lands on which its copper
mines, concentrators, SX/EW facilities, smelters, refinery and rod mills are
located and holds the rest under lease. The Chino Mines partnership owns
substantially all the lands on which its copper mine, concentrator, SX/EW
facility and smelter are located and holds the rest under lease.
Sales and Competition
- ---------------------
A majority of Phelps Dodge's copper, and additional copper purchased by
the Corporation, is cast into rod. Rod sales to outside wire and cable
manufacturers constituted approximately 56 percent of Phelps Dodge Mining
Company's sales in 1996. Phelps Dodge also sells its copper as concentrate and
cathode. Sales of rod and cathode are made directly to wire and cable
fabricators and brass mills under contracts principally of a one-year duration.
Phelps Dodge rod also is used by the Corporation's magnet wire, bare wire and
specialty conductor operations.
The Corporation sells its copper rod and cathode on the basis of
premiums, which are announced from time to time by the Corporation, over New
York Commodity Exchange (COMEX) prices. It also sells copper concentrates based
on the prices on the COMEX or the London Metal Exchange (LME). From time to
time, Phelps Dodge engages in hedging programs designed to enable the
Corporation to realize current average prices for metal delivered or committed
to be delivered. Other price protection arrangements also may be entered into
from time to time, depending on market circumstances, to ensure a minimum price
for a portion of the Corporation's expected future mine production (see
Management's Discussion and Analysis and Notes 1 and 19 to the Consolidated
Financial Statements for a further discussion of such arrangements).
Most of the refined copper sold by Phelps Dodge is incorporated into
electrical wire and cable products worldwide for use in the construction,
electric utility, communications and transportation industries. It is also used
in industrial machinery and equipment, consumer products and a variety of other
electrical and electronic applications.
In the sale of copper as rod, cathode and concentrates, the Corporation
competes, directly or indirectly, with many other sellers, including at least
four other U.S. primary producers, as well as numerous foreign producers, metal
merchants, custom refiners and scrap dealers. Some major producers outside the
United States have cost advantages resulting from richer ore grades, lower labor
costs and in some cases a lack of strict regulatory requirements. The
Corporation believes that its ongoing programs to contain costs and improve
productivity in its copper operations have significantly narrowed these cost
advantages and have placed the Corporation in a favorable competitive position
with respect to a number of its international competitors.
The Corporation's copper also competes with other materials, such as
aluminum, plastics, stainless steel and fiber optics, that can be substituted
for copper in certain applications.
The Corporation's principal methods of competing include pricing,
product quality, customer service and dependability of supply.
Prices, Supply and Consumption
- ------------------------------
Copper is an internationally traded commodity, and its prices are
effectively determined by the two major metals exchanges -- the New York
Commodity Exchange (COMEX) and the London Metal Exchange (LME). The prices on
these exchanges generally reflect the worldwide balance of copper supply and
demand, but are also influenced significantly from time to time by speculative
actions and by currency exchange values.
A slowing world economy and higher exports from formerly socialist
countries resulted in a modest surplus in 1992. As a result, the COMEX price
decreased in 1992 resulting in an annual average price per pound of $1.03.
Excess inventories caused average copper prices to decline to 85 cents per pound
in 1993. In 1994, excess inventories that accumulated after 1992 were liquidated
as copper consumption increased reflecting solid economic growth in the United
States, the beginning of an economic recovery in Europe and continued strong
demand from the Pacific Rim region, excluding Japan. As a result, the 1994
annual average price per pound increased to $1.07. In 1995, the price of copper
as reported on COMEX averaged $1.35 per pound of copper cathode, 28 cents more
than the 1994 average price. The price increase was attributable to the strong
growth in demand during 1994, which reduced copper inventories to low levels in
1995.
In 1996, the COMEX copper price averaged $1.06 per pound of copper
cathode, 29 cents less than the 1995 average price. The decrease was
attributable primarily to the market's reaction to more than $2 billion in
losses from unauthorized transactions by a Japanese company's copper trader. The
price also was influenced by false rumors regarding excess inventories of copper
in the market.
While the market anticipated a copper supply increase in 1996,
worldwide copper inventories remained in the low four-week level, consistent
with 1995 levels. The stability was due to continued growth in copper
consumption, slightly reduced output of smelters and lack of available scrap,
which forced brass mills to purchase cathode as a substitute. Western world
copper consumption increased by more than 3 percent. The ongoing economic
expansion in the United States fueled strong demand in all copper consuming
sectors. In Europe, growth was flat when compared to 1995 due to depressed
economic conditions. While Japan emerged from a recession, the country continued
to export its manufacturing capabilities resulting in weak copper consumption
growth. Strong fundamental growth continued throughout Southeast Asia, while
China imported large quantities of copper to increase strategic inventories.
Costs
- -----
Unit production costs of copper in 1996 were slightly higher than in
1995, principally as a result of increased depreciation charges from recent
capital projects, increased mining expenses and costs associated with a
maintenance overhaul at the Hidalgo smelter. Unit production costs of copper
generally continued to reflect high levels of production, ongoing cost
containment programs and increasing amounts of copper obtained through the SX/EW
process, including the start-up of the Southside SX/EW project at the Morenci
mine in the 1995 third quarter, at favorable incremental costs.
Energy Supplies
- ---------------
The principal sources of energy for the Corporation's copper operations
are natural gas, petroleum products, waste heat generated in the smelting
processes and electricity purchased from public utilities. Each of the
Corporation's mine power plants and smelters uses natural gas as its primary
fuel, and each is capable of being converted to use oil as a substitute fuel.
The Corporation has experienced no difficulty in recent years in obtaining
adequate fuel to maintain production.
Environmental and Other Regulatory Matters
- ------------------------------------------
Federal and state environmental laws and regulations affect many
aspects of the Corporation's mining operations. The federal Clean Air Act of
1970, as amended (the Clean Air Act), and regulations thereunder to date have
had the most significant impact, particularly on the Corporation's smelters.
The "solid wastes" of the Corporation's copper operations may be
subject to regulation under the federal Resource Conservation and Recovery Act
(RCRA) and related state laws and, to the extent these wastes affect surface
waters, under the federal Clean Water Act and relevant state water quality laws.
Formerly, mining wastes were exempted from the federal "hazardous waste"
regulations under RCRA. As a result of subsequent actions by the Environmental
Protection Agency (EPA), all "extraction" and "beneficiation" wastes and 20
mineral "processing" wastes retain the exemption, and are to be regulated as
"solid waste," rather than as "hazardous waste," under RCRA Subtitle C. Only
three of the 20 exempt "processing" wastes are copper "processing" wastes.
Therefore, the generation and management of any other mineral smelting or
refining waste could be subject to "hazardous waste" regulation if the waste
exhibits a hazardous waste characteristic or if EPA specifically designates it
as a "listed hazardous waste." The Corporation has taken steps to address the
potential regulation as "hazardous waste" of any of its wastes which no longer
meet the definition of exempt mineral "processing" wastes. RCRA Subtitle D rules
governing mineral "extraction" and "beneficiation" wastes and "processing"
wastes that are exempt from RCRA Subtitle C have not yet been promulgated by
EPA, Arizona or New Mexico. As stated in its proposal and reproposal of Phase IV
Supplemental Land Disposal Restriction (LDR) rules, EPA is considering
restricting the Subtitle C exemption for mineral "extraction," "beneficiation,"
and "processing" waste. EPA may seek to impose "hazardous waste" regulation on
"processing" waste that is stored or treated before it is recycled, and EPA is
re-examining the scope of the current exemption, apparently as part of its
negotiations to settle a lawsuit brought by environmental groups over the Phase
IV LDRs. Any limitation on the scope of the exemption could impact or increase
the costs of operations. The new regulations have not been proposed and the
Corporation cannot estimate the impact of such future "solid waste" or
"hazardous waste" rules on its operations.
The Corporation's copper operations are also subject to federal and
state laws and regulations protecting both surface water and groundwater
quality. The Corporation possesses, has applied for, or is in the process of
applying for the necessary permits or other governmental approvals presently
required under these rules and regulations.
At the Hidalgo smelter at Playas, New Mexico, in accordance with the
discharge plan approved by the New Mexico Environment Department (NMED), the
Corporation continues to monitor and report to NMED regarding groundwater
quality in the vicinity of the smelter's compacted, clay-lined evaporation pond.
The Corporation is continuing its efforts to assess the effect on groundwater
quality from operation of the evaporation pond and will continue to investigate
and implement appropriate technologies and contingency plans to mitigate any
adverse effect. The Corporation had also agreed during the term of an earlier
discharge plan to cease discharging acidic solutions to the evaporation pond as
presently constructed, to neutralize or remove the acidic solutions present in
the evaporation pond, and to commence a groundwater remediation program for any
existing contamination. Accordingly, a neutralization facility, a series of
lined impoundments, and a series of pumpback wells have been installed and are
operated to begin remediation of groundwater adversely affected by past
operation of the evaporation pond and to prevent future contamination.
Effective September 27, 1989, Arizona adopted regulations for its
aquifer protection permit (APP) program, which replaced the then existing
Arizona groundwater quality protection permit regulations. Several of the
Corporation's properties continue to operate pursuant to the transition
provisions for existing facilities under the APP regulations. The APP
regulations require permits for new facilities, activities and structures for
mining, concentrating and smelting. The APP may require mitigation and discharge
reduction or elimination. APP applications for existing facilities operating
pursuant to the APP transition provisions are not required until requested by
the State or unless a major modification at the facility alters the existing
discharge characteristics. The Corporation has applied for and received an APP
for a closed tailing pile in Clarkdale, Arizona. The Corporation also has
conducted groundwater studies and submitted APP applications for several of its
other properties and facilities, including the Morenci mine and certain
facilities at the Copper Queen branch. The Corporation will continue to prepare
and submit APP applications for its remaining existing properties and
facilities, as well as for any new properties or facilities. It is not known
what the APP requirements for all existing and new facilities will be and,
therefore, it is not possible to estimate such costs. The Corporation is likely
to continue to have to make expenditures to comply with the APP program and
regulations.
On December 23, 1994, Chino Mines Company (CMC), which is two-thirds
owned by Phelps Dodge Corporation and is located near Silver City, New Mexico,
entered into an Administrative Order on Consent (AOC) with the New Mexico
Environment Department that will require CMC to study the environmental impacts
and potential health risks associated with portions of the CMC property affected
by historical mining operations. Phelps Dodge acquired CMC at the end of 1986.
Those studies began in 1995 and, until completed, it will not be possible to
determine the nature, extent, cost, and timing of remedial work which will be
required under the AOC, although remedial work is expected to be required.
In 1993 and 1994, the New Mexico and Arizona legislatures,
respectively, passed laws requiring the reclamation of mined lands in those
states. The New Mexico Mining Commission adopted rules for the New Mexico
program during 1994, and the Corporation's operations began submitting the
required permit applications in December 1994. The Arizona State Mine Inspector
adopted rules for the Arizona program in January 1997, and the Corporation's
operations are expected to begin submitting the required reclamation plans in
March 1997. These laws and regulations will likely increase the Corporation's
regulatory obligations and compliance costs with respect to mine closure and
reclamation. At this time, it is not possible to quantify the impact of the new
laws and regulations on the Corporation.
The 1990 Amendments to the federal Clean Air Act require EPA to develop
and implement many new requirements, and they allow states to establish new
programs to implement some of the new requirements, such as the requirements for
operating permits under Title V of the 1990 Amendments and hazardous air
pollutants under Title III of the 1990 Amendments. Because EPA has not yet
adopted or implemented all of the changes required by Congress, the air quality
laws will continue to expand and change in coming years as EPA develops new
requirements and then implements them or allows the states to implement them.
Nevertheless, most states have made or are in the process of making certain
required changes to their laws regarding Title V. In response to these new laws,
several of the Corporation's subsidiaries already have submitted or are in the
process of preparing applications for Title V operating permits. These programs
will likely increase the Corporation's regulatory obligations and compliance
costs. These costs could include implementation of maximum achievable control
technology for any of the Corporation's facilities that is determined to be a
major source of federal hazardous air pollutants. Until more of the implementing
regulations are adopted, and more experience with the new programs is gained, it
is not possible to determine the impact of the new requirements on the
Corporation.
The Corporation estimates that its share of capital expenditures for
programs to comply with applicable environmental laws and regulations that
affect its mining operations will total approximately $34 million in 1997 and
from $25 million to $30 million in 1998; $21 million was spent on such programs
in 1996. The Corporation also anticipates making significant capital and other
expenditures beyond 1998 for continued compliance with such laws and
regulations. In light of the frequent changes in such laws and regulations and
the uncertainty inherent in this area, the Corporation is unable to estimate
accurately the total amount of such expenditures over the longer term, but it
may be substantial. (See the discussion of "OTHER ENVIRONMENTAL MATTERS.")
In 1995, legislation was introduced in both the U.S. House of
Representatives and the U.S. Senate to amend the Mining Law of 1872. None of the
bills was enacted into law. Also, mining law amendments were added to the 1996
budget reconciliation bill, which was vetoed by the President. Among other
things, the amendments contained in the 1996 bill would have imposed a 5 percent
net proceeds royalty on minerals extracted from federal lands, required payment
of fair market value for patenting federal lands, and required that patented
lands used for non-mining purposes revert to the federal government. Several of
these same concepts likely will be pursued legislatively in 1997. The Secretary
of the Interior also recently ordered the Bureau of Land Management (BLM) to
form a task force to review BLM's hardrock mining surface management regulations
and propose revisions to expand environmental and reclamation requirements,
among other things. While the effect of such changes on Phelps Dodge's current
operations and other currently owned mineral resources on private lands would be
minimal, passage of mining law amendments and/or adoption of revisions to the
hardrock mining surface management regulations, as described above, would result
in additional expenses in the development and operation of new mines on federal
lands.
The Corporation is also subject to federal and state laws and
regulations pertaining to plant and mine safety and health conditions, including
the Occupational Safety and Health Act of 1970 and the Mine Safety and Health
Act of 1977. In particular, present and proposed regulations govern worker
exposure to a number of substances and conditions present in work environments,
including dust, mist, fumes, heat and noise. The Corporation has made and is
likely to continue to have to make expenditures to comply with such legislation
and regulations.
Phelps Dodge does not expect that the additional capital and operating
costs associated with achieving compliance with the various environmental,
health and safety laws and regulations will adversely affect its competitive
position relative to other U.S. copper producers, which are subject to
comparable requirements. However, because copper is an internationally traded
commodity, these costs could significantly affect the Corporation in its efforts
to compete globally with those foreign producers that are not subject to such
stringent requirements.
Labor Matters
- -------------
Employees in Phelps Dodge Mining Company's Arizona operations, El Paso
refinery, Tyrone, Hidalgo smelter, Burro Chief Copper Company and Norwich rod
mill, and certain employees at Chino are not represented by any unions. The
collective bargaining agreements covering approximately 625 employees at Phelps
Dodge Mining Company's Chino operations in New Mexico expired on June 30, 1996.
As of March 6, 1997, employees who were covered by the agreements have continued
to work without a contract. The labor contract at the El Paso rod mill expires
on May 29, 1998.
PHELPS DODGE INDUSTRIES
- -----------------------
Phelps Dodge Industries is a business segment comprising a group of
companies that manufacture engineered products principally for the
transportation, energy and telecommunications sectors worldwide. Its operations
are characterized by products with significant market share, internationally
competitive cost and quality, and specialized engineering capabilities. This
business segment includes the Corporation's specialty chemicals operations
through Columbian Chemicals Company and its subsidiaries (Columbian Chemicals);
its wheel and rim operations through Accuride Corporation and its subsidiaries
(Accuride); and its U.S. and international wire and cable and specialty
conductor operations through Phelps Dodge International Corporation and Phelps
Dodge Magnet Wire Company and their subsidiaries and affiliates.
Operations
- ----------
Columbian Chemicals, headquartered in Atlanta, Georgia, is an
international producer and marketer of carbon blacks. The company produces a
full range of rubber and industrial carbon blacks in 11 plants worldwide, with
approximately one-half of its production in North America and the other half at
facilities in the United Kingdom, Germany, Italy, Spain, Hungary (owned 60
percent by Columbian Chemicals), and the Philippines (owned 88.2 percent by
Columbian Chemicals). Columbian's rubber carbon blacks improve the tread wear
and durability of tires, and extend the service life of many rubber products
such as belts and hoses. The company's industrial carbon blacks are used in such
diverse applications as pigmentation of coatings, inks and plastics; ultraviolet
stabilization of plastics; and as conductive insulation for wire and cable. The
Hungarian plant began production in December 1993. It is owned by Columbian
Tiszai Carbon Ltd. which in turn is owned 60 percent by Columbian Chemicals and
40 percent by Tiszai Vegyi Kombinat Rt., the largest petrochemical company in
Hungary. The plant in Santander, Spain, was acquired in 1994 from Repsol Quimica
S.A. and is wholly owned by the Corporation. The company also maintains sales
offices in 10 countries and makes use of distributors worldwide. One of the
company's carbon black plants in Germany, the Hamburg plant, was closed in 1994
as a result of its high cost structure and environmental restrictions. In
addition, the company sold its U.S. synthetic iron oxide plant (MAPICO) during
the 1995 first quarter. This operation was peripheral to Columbian's core
business.
Extensive research, development and engineering are performed by
Columbian at four locations. The company's Technology Center at Swartz,
Louisiana, is responsible for studies specific to both industrial and rubber
applications of carbon black. Carbon black product and process development at
the Technology Center is supported by development work at the company's North
Bend, Louisiana, and Hamilton, Ontario, plants. The European Central Laboratory
at Avonmouth, United Kingdom, provides technical support for Columbian's
European operations. Columbian Chemicals also licenses rubber carbon technology
to other carbon black manufacturing companies in various countries.
Accuride Corporation, headquartered in Henderson, Kentucky,
manufactures and markets wheels and rims for commercial trucks, trailers and
buses. Accuride produces a wide range of steel tubeless and tube-type disc
wheels and demountable rims for the mounting systems of medium and heavy duty
trucks, trailers and buses, as well as wheels for commercial light trucks. The
company also offers a line of forged aluminum wheels for medium and heavy duty
trucks, trailers and buses. This broad product line is sold at the North
American original equipment manufacturer level and is marketed through a U.S.
and international distribution network. Accuride operates a manufacturing
facility and a design and test center in Henderson, Kentucky; a manufacturing
facility in London, Ontario, Canada; and a customer service center in Taylor,
Michigan. In addition, Accuride and The Goodyear Tire and Rubber Company of
Akron, Ohio, each own 50 percent of AOT Inc., a commercial tire and wheel
assembly facility located in Springfield, Ohio, that services two plants of
Navistar International Transportation Corporation. On September 18, 1996,
Accuride and Kaiser Aluminum and Chemical Corporation (Kaiser) announced their
intent to form a joint venture company to produce aluminum wheels for the
commercial transportation industry. Accuride and Kaiser would each own 50
percent of the new company.
Phelps Dodge Magnet Wire Company, headquartered in Fort Wayne, Indiana,
is an international producer of magnet wire, the insulated conductor used in
most electrical systems. Its products are manufactured in the United States at
plants in Fort Wayne, Indiana; Hopkinsville, Kentucky; Laurinburg, North
Carolina; and El Paso, Texas. The plant in North Carolina was added in March
1994 when Phelps Dodge Magnet Wire Company acquired certain assets of a
fine-gauge magnet wire manufacturing plant from Rea Magnet Wire Company, Inc.
(Rea). The plant in Texas was also added in March 1994 with the acquisition of
certain assets of Texas Magnet Wire Company, a joint venture of Rea and Fujikura
International, Inc. Phelps Dodge Magnet Wire Company also manufactures its
products at a plant in Mureck, Austria. The Austrian operation, Phelps Dodge
Eldra, GmbH, is a joint venture with Eldra Elektrodraht-Erzeugung GmbH, a
leading European magnet wire manufacturer. Phelps Dodge owns a 51 percent
interest in the venture; Eldra Elektrodraht-Erzeugung GmbH owns the remaining 49
percent. In addition, the company and Sumitomo Electric Industries, Ltd. each
own a 50 percent interest in SPD Magnet Wire Company, a joint venture that
operates a magnet wire plant in Edmonton, Kentucky. These plants draw and
insulate copper and aluminum wire which is sold as magnet wire to original
equipment manufacturers for use in electric motors, generators, transformers,
televisions, automobiles and a variety of small electrical appliances. Magnet
wire is also sold to electrical equipment repair shops and smaller original
equipment manufactures through a network of distributors. On August 7, 1996, the
Corporation announced plans to construct a magnet wire manufacturing plant in
Monterrey, Mexico. Construction of the $42 million project began in 1996 with
commercial production expected in early 1998.
The Corporation has interests in companies that are primarily involved
in the manufacture of telecommunication and energy cables and specialty
conductors for international markets through U.S. operations and joint venture
associations in 14 other countries. The Corporation's interests in these
companies are managed by Phelps Dodge International Corporation, a wholly owned
subsidiary headquartered in Coral Gables, Florida, which also provides
management, marketing assistance, technical support, and engineering and
purchasing services to these companies. In order to supply the increasing demand
for copper rod in certain countries, five of the Corporation's international
wire and cable companies have continuous-cast copper rod facilities. The
Corporation has majority interests in companies operating in 10 countries --
Chile, China, Costa Rica, Ecuador, El Salvador, Honduras, Panama, Thailand,
Venezuela and Zambia. In Zambia, the Corporation increased its effective
ownership interest in Metal Fabricators of Zambia Limited (ZAMEFA) from 20
percent to 51 percent. The Corporation has minority interests in companies
located in Hong Kong, Thailand, China and the Philippines, accounted for on the
equity basis, and in companies located in Greece and India, accounted for on the
cost basis.
Phelps Dodge International Corporation also manages U.S. operations
that manufacture and market specialty high-performance conductors for the
aerospace, automotive, biomedical, computer and consumer electronics markets.
The principal products are highly engineered conductors of copper and copper
alloy wire electroplated with silver, tin or nickel for sophisticated, specialty
product niches. These manufacturing operations consist of plants located in
Inman, South Carolina; Trenton, Georgia; and Elizabeth, Fairfield, Montville and
West Caldwell, New Jersey. The plants in Fairfield, Montville and West Caldwell,
New Jersey, were added in May 1996 when Phelps Dodge acquired Nesor Alloy
Corporation.
See Note 20 to the Consolidated Financial Statements for information
concerning Phelps Dodge Industries' sales by its specialty chemicals, wheel and
rim, and wire and cable operations.
Ownership of Real Property
- --------------------------
Phelps Dodge Industries owns most of its plants and the land on which
they located. The exceptions are the land and buildings of Accuride in
Henderson, Phelps Dodge Magnet Wire in Austria and Nesor at Fairfield and
Montville, which are leased. Additionally, the land on which six international
plants are located is leased.
Competition and Markets
- -----------------------
The principal competitive factors in the various markets in which
Phelps Dodge Industries competes are price, product quality, customer service,
dependability of supply, delivery lead time, breadth of product line and
research and development.
Columbian Chemicals is among the world's largest producers of carbon
black. Approximately 90 percent of the carbon black produced is used in rubber
applications, 75 percent of which is used in the tire industry. The major tire
manufacturers in the United States and Western Europe account for a substantial
portion of Columbian Chemicals' carbon black sales. In addition, Columbian
Chemicals maintains a strong competitive position in mechanical rubber goods
markets based on its commitment to quality and service. The Corporation is not
aware of any product that could be substituted for carbon black to a significant
extent in any of its principal applications. Including Columbian Chemicals,
there are a total of six carbon black producers in the United States, two in
Canada and three major producers in Western Europe. The carbon black industry is
highly competitive, particularly in the U.S. rubber black market. The company
has expanded its production and marketing position by entry into the emerging
market in Central Europe through the start up of operations of Columbian Tiszai
Carbon Ltd. in Hungary in late 1993, and further enhanced its presence in
international markets through the acquisition of a carbon black plant in Spain
in late 1994.
The Corporation believes that Accuride is the largest producer of rim
and wheel products for commercial trucks, trailers and buses in North America.
Accuride's sales are primarily in the United States, where a majority of the
truck, trailer and bus manufacturers are located, and in Canada. The demand for
its products fluctuates with the level of original equipment truck, trailer and
bus manufacturing activity. In the last five years, Accuride's 10 largest
customers have accounted for approximately 70 percent of its total sales.
Accuride principally competes with three U.S. companies.
With the 1994 acquisition of plants in El Paso, Texas, and Laurinburg,
North Carolina, and the new plant being constructed in Monterrey, Mexico, the
Corporation believes that Phelps Dodge Magnet Wire Company will continue its
position as the world's largest manufacturer of magnet wire. It principally
competes with four U.S. manufacturers. The company also has expanded its
production and marketing position by acquiring a majority interest in a magnet
wire manufacturing company in Austria. The Corporation, through Phelps Dodge
International Corporation, also manufactures magnet wire at affiliate companies
in Venezuela, Thailand, Zambia and the Philippines.
The Corporation's international telecommunication and energy cable
companies sell a majority of their products to contractors, distributors, and
public and private utilities. Their products are used in lighting, power
distribution, telecommunications and other electrical applications. The
Corporation's specialty high-performance conductors are primarily sold to
intermediators (insulators, assemblers, subcontractors and distributors). More
than half of these products are ultimately sold to commercial and military
aerospace companies for use in airframes, avionics, space electronics, radar
systems and ground control electronics. Specialty high-performance conductors
are also used in appliances, instrumentation, computers, telecommunications,
military electronics, medical equipment and other products. The Corporation has
one primary U.S. competitor in the specialty conductor market; however, in those
few markets where it competes for high volume products, it faces competition
from several U.S. fabricators.
Raw Materials
- -------------
Carbon black primarily is produced from heavy residual oil, a
by-product of the crude oil refining process. Columbian Chemicals purchases
substantially all of its feedstock on a spot basis at prices that fluctuate with
world oil prices. The cost of feedstock is a significant factor in the cost of
carbon black. To achieve satisfactory financial results during periods of
increasing oil prices, Columbian Chemicals must be able to pass through to
customers any increase in its feedstock costs.
Accuride manufactures a majority of its products from either flat roll
or section steel, except for certain finished aluminum products manufactured to
its specifications and designs by Kaiser. A joint venture company that Accuride
and Kaiser intend to form to produce aluminum wheels, when formed, would replace
the current manufacturing agreement between the two companies.
The principal raw materials used by Phelps Dodge Magnet Wire Company's
manufacturing operations are copper, aluminum and various electrical insulating
materials.
The principal raw materials used by the Corporation's international
telecommunication and energy cable companies are copper, copper alloy, aluminum,
copper-clad steel and various electrical insulating materials. The specialty
conductor product line is usually plated with silver, nickel or tin. With the
exception of copper needed in specialty conductors, a majority of the materials
used by these companies is purchased from others.
Phelps Dodge Magnet Wire Company acquires most of its copper from the
Corporation. Phelps Dodge Industries purchases its residual oil feedstock and
other raw materials from various other suppliers. It does not believe that the
loss of any one supplier would have a material adverse effect on its financial
conditions or on the results of its operations.
Energy Supplies
- ---------------
Phelps Dodge Industries' operations generally use purchased electricity
and natural gas as their principal sources of energy. Phelps Dodge Magnet Wire
Company's principal manufacturing equipment that uses natural gas is also
equipped to burn alternative fuels.
Environmental Matters
- ---------------------
Environmental laws and regulations affect many aspects of the
Corporation's industrial operations. Phelps Dodge Industries estimates that its
capital expenditures for programs to comply with applicable environmental laws
and regulations will total approximately $18 million in 1997 and from $10
million to $15 million in 1998; $16 million was spent on these programs in 1996.
The Corporation also anticipates making significant capital and other
expenditures beyond 1998 for continued compliance with such laws and
regulations. In light of the frequent changes in such laws and regulations and
the uncertainty inherent in this area, the Corporation is unable to estimate
accurately the total amount of such expenditures over the longer term, but it
may be substantial. (See the discussion of "OTHER ENVIRONMENTAL MATTERS.")
Labor Matters
- -------------
Phelps Dodge Industries has labor agreements covering most of its U.S.
and international plants. Accuride had a three-year labor agreement covering
approximately 690 employees at its London, Ontario, Canada, plant that expired
on January 21, 1997. All employees covered by the expired agreement began an
immediate strike, and as of March 6, 1997, that strike continued. Accuride has
maintained operations with its salaried workforce and continues to supply its
customers. Accuride also has a three-year labor agreement covering approximately
400 employees that will expire on February 20, 1998, at its Henderson, Kentucky,
plant. The collective bargaining agreement covering approximately 360 employees
at Phelps Dodge Magnet Wire Company's Hopkinsville, Kentucky, plant expired on
October 11, 1996. As of March 6, 1997, employees who were covered by the
agreement have continued to work without a contract. Phelps Dodge
International's plant in Elizabeth, New Jersey, has a three-year agreement
covering approximately 60 employees that expires on July 31, 1997.
RESEARCH AND DEVELOPMENT
- ------------------------
The Corporation conducts research and development programs relating to
technology for exploration for minerals, recovery of metals from ores,
concentrates and solutions, smelting and refining of copper, metal processing
and product development. It also conducts research and development programs
related to its carbon black products through its Columbian Chemicals subsidiary,
its wheel and rim products through its Accuride subsidiary, its wire insulating
processes and materials through Phelps Dodge Magnet Wire Company, and conductor
materials and processes through Phelps Dodge International Corporation.
Expenditures for all of these research and development programs, together with
contributions to industry and government-supported programs, totaled $16.5
million in 1996, compared with $15.8 million in 1995 and $15.9 million in 1994.
OTHER ENVIRONMENTAL MATTERS
- ---------------------------
The Corporation is subject to federal, state and local environmental
laws, rules and regulations, including the Comprehensive Environmental Response,
Compensation and Liability Act of 1980 (CERCLA or Superfund), as amended by the
Superfund Amendments and Reauthorization Act of 1986. Under Superfund, the
Environmental Protection Agency (EPA) has identified approximately 35,000 sites
throughout the United States for review, ranking and possible inclusion on the
National Priorities List (NPL) for possible response. Among the sites
identified, EPA has included 13 sites owned by the Corporation. The Corporation
believes that most, if not all, of its sites so identified will not qualify for
listing on the NPL.
In addition, the Corporation may be required to remove hazardous waste
or remediate the alleged effects of hazardous substances on the environment
associated with past disposal practices at sites not owned by the Corporation.
The Corporation has received notice that it is a potentially responsible party
from EPA and/or individual states under CERCLA or a state equivalent and is
participating in environmental assessment and remediation activity at 37 sites.
For further information about these proceedings, see Item 3. Legal Proceedings,
Part III.
At December 31, 1996, the Corporation had reserves of $117.0 million
for remediation of certain of the sites referred to above and other
environmental costs in accordance with its policy to record liabilities for
environmental expenditures when it is probable that obligations have been
incurred and the costs reasonably can be estimated. The Corporation's estimates
of these costs are based upon currently available facts, existing technology,
and presently enacted laws and regulations. Where the available information is
sufficient to estimate the amount of liability, that estimate has been used;
where the information is only sufficient to establish a range of probable
liability and no point within the range is more likely than any other, the lower
end of the range has been used.
The amounts of these liabilities are very difficult to estimate due to
such factors as the unknown extent of the remedial actions that may be required
and, in the case of sites not owned by the Corporation, the unknown extent of
the Corporation's probable liability in proportion to the probable liability of
other parties. Moreover, the Corporation has other probable environmental
liabilities that in its judgment cannot reasonably be estimated, and losses
attributable to remediation costs are reasonably possible at other sites. The
Corporation cannot now estimate the total additional loss it may incur for such
environmental liabilities, but such loss could be substantial.
The possibility of recovery of some of the environmental remediation
costs from insurance companies or other parties exists; however, the Corporation
does not recognize these recoveries in its financial statements until they
become probable.
The Corporation's operations are subject to myriad environmental laws
and regulations in jurisdictions both in the United States and in other
countries in which it does business. For further discussion of these laws and
regulations, please see "Environmental and Other Regulatory Matters" and
"Environmental Matters." The estimates given in those discussions of the capital
expenditures for programs to comply with applicable environmental laws and
regulations in 1997 and 1998, and the expenditures for those programs in 1996,
are separate from the reserves and estimates described above.
The Environmental, Health and Safety Committee of the Board of
Directors, comprising four non-employee directors, was established in 1991. The
Committee met three times in 1996 to review, among other things, the
Corporation's policies with respect to environmental, health and safety matters,
and the adequacy of management's programs for implementing those policies. The
Committee reports on such reviews and makes recommendations with respect to
those policies to the Board of Directors and to management.
Item 3. Legal Proceedings
- --------------------------
I. The Corporation is participating, either directly as a party or as a
member of certain trade associations, in several legal challenges to air quality
rules or guidance documents issued by EPA. This litigation primarily involves
the establishment or amendment of national ambient air quality standards, the
requirements for the construction or major modification of major sources of
criteria pollutants, Title V operating permits, and the status of fugitive
emissions under the Title V and federal hazardous air pollutants programs.
In August 1983, EPA proposed regulations (48 Fed. Reg. 38,742) which,
if adopted, would have substantially implemented a February 1982 settlement
agreement dealing with fugitive emissions, but on October 26, 1984, EPA
promulgated final regulations inconsistent with the August 1983 proposal. In
December 1984, the Corporation, the American Mining Congress and several mining
and energy development companies filed a petition (No. 84-1609) in the U.S.
Court of Appeals for the District of Columbia for review of the October 26,
1984, regulations, asserting that the terms of the settlement agreement, to
which they were party, had not been carried out. The court stayed the petition
pending the outcome of further EPA rulemakings.
The further EPA rulemakings were also challenged by the American Mining
Congress and others in federal court actions filed in 1989 and 1993. The U.S.
Court of Appeals for the District of Columbia Circuit decided two of the appeals
in 1995. In National Mining Association v. EPA, 59 F.3d 1351 (D.C. Cir. 1995),
the court agreed with EPA that, under the federal hazardous air pollutants
program, collocated facilities should be considered as part of the same emitting
"source" and fugitive emissions must be counted when determining whether a
source is a "major source." The court agreed with the industry petitioners that
a source could avoid "major source" status by using effective air pollution
controls, even if the controls are not "federally enforceable."
In Chemical Manufacturers Association et al. v. EPA, No. 89-1514, Slip
op. (D.C. Cir. 1995), the court agreed with the industry petitioners and vacated
and remanded EPA's rules which did not allow facilities to consider air
pollution controls when determining whether a permit is needed for new or
increased emissions of criteria pollutants, unless the controls were "federally
enforceable." In response, EPA has asserted that its rules nevertheless remain
in effect and that it may cure the defect in the rules merely by issuing written
guidance in the near future. The industry petitioners have requested the court
to enforce its original mandate against the agency.
The effect of these decisions on the Corporation's facilities will vary
on a case-by-case basis. They will have no effect on some facilities; they may
cause some facilities to be regulated as "major sources" under one or more
federal programs; and they may allow some sources to avoid regulation as "major
sources" by using air pollution controls that are enforceable under federal,
state or local laws.
II. Reference is made to Part I, Items 1 and 2 of this report for
information regarding proceedings that pertain to water used by the
Corporation's Morenci, Arizona, operations.
A. The following state water rights adjudication proceedings
are pending in Arizona Superior Court:
1. In re the General Adjudication of All Rights to Use
Water in the Little Colorado River System and Source, No. 6417
(Superior Court of Arizona, Apache County).
(a) Petition was filed by the Corporation on or
about February 17, 1978, and process has been served on all
potential claimants. Virtually all statements of claimant have been
filed.
(b) The principal parties, in addition to the
Corporation, are the State of Arizona, the Navajo Tribe of Indians,
the Hopi Indian Tribe, the San Juan Southern Paiute group of
Indians and the United States on its own behalf and on behalf of
those Indian tribes. In this adjudication and in the adjudications
reported in items 2.(a), (b) and (c) below, the United States and
the Indian tribes seek to have determined and quantified their
rights to use water arising under federal law on the basis that,
when the Indian reservations and other federal reservations were
established by the United States, water was reserved from
appropriation under state law for the use of those reservations.
(c) This proceeding could affect, among other
things, the Corporation's rights to impound water in Show Low Lake
and Blue Ridge Reservoir and to transport this water into the Salt
River and Verde River watersheds for exchange with the Salt River
Valley Water Users' Association. The Corporation has filed
statements of claimant for these and other water claims. This
litigation is stayed pending the outcome of current settlement
negotiations. The Court has not set a final schedule of cases to go
to trial, should the litigation resume.
2. In re the General Adjudication of All Rights to Use
Water in the Gila River System and Source, Nos. W-1 (Salt River), W-2
(Verde River), W-3 (Gila River) and W-4 (San Pedro River) (Superior
Court of Arizona, Maricopa County). As a result of consolidation
proceedings, this action now includes general adjudication proceedings
with respect to the following three principal river systems and
sources:
(a) The Gila River System and Source Adjudication:
(i) Petition was filed by the
Corporation on February 17, 1978. Process has been served on
water claimants in the upper and lower reaches of the
watershed and virtually all statements of claimant have been
filed.
(ii) The principal parties, in
addition to the Corporation, are the Gila Valley Irrigation
District, the San Carlos Irrigation and Drainage District, the
State of Arizona, the San Carlos Apache Tribe, the Gila River
Indian Community and the United States on its own behalf and
on behalf of the tribe and the community.
(iii) This proceeding could affect,
among other things, the Corporation's claim to the
approximately 3,000 acre-feet of water that it diverts
annually from Eagle Creek, Chase Creek or the San Francisco
River and its claims to percolating groundwater that is pumped
from wells located north of its Morenci Branch operations in
the Mud Springs and Bee Canyon areas and in the vicinity of
the New Cornelia Branch at Ajo. The Corporation has filed
statements of claimant with respect to waters that it diverts
from these sources.
(iv) By a letter agreement dated
September 7, 1990, the Corporation and the San Carlos Apache
Tribe agreed upon principles to settle the water claims of
that Tribe and other land use issues involving the Tribe's
reservation. Since that time, comprehensive settlement
agreements among the Tribe, the Corporation and other parties
have been under negotiation. In the more recent phases of the
settlement negotiations, the Tribe has sought terms that the
Corporation believes are unacceptable and inconsistent with
the principles set forth in the September 7, 1990, letter
agreement. The Tribe has also notified the Corporation to make
preparations to stop using the reservation for water
transportation by July 1997, at the latest. The Corporation
obtains water for its Morenci complex from several sources,
including through the operation of a pump station on
reservation lands adjacent to the Black River, and uses the
natural channel of Eagle Creek, which is partially located on
the reservation, to transport water from Black River and
certain other sources to its Morenci complex. The Corporation
believes that it holds valid rights of way and easements and
has other legal rights sufficient to allow for the continued
operation of the Black River pump station on reservation lands
and for the use of Eagle Creek. However, if the Corporation
were to lose the use of the Black River pump station, and was
unable to transport water using the natural channel of Eagle
Creek, that might adversely affect production at the Morenci
complex depending upon the availability of alternative sources
of water. The parties are continuing to discuss all of these
matters. The federal legislation authorizing settlement of the
Tribe's water rights claims with the Corporation and the other
parties to the proceeding has been extended for a six-month
period expiring June 30, 1997.
(b) The Salt River System and Source Adjudication:
(i) Petition was filed by the Salt
River Valley Water Users' Association on or about April 25,
1974. Process has been served, and statements of claimant have
been filed by virtually all claimants.
(ii) Principal parties, in addition
to the Corporation, include the petitioner, the State of
Arizona and the United States, on its own behalf and on behalf
of various Indian tribes and communities including the White
Mountain Apache Tribe, the San Carlos Apache Tribe, the Fort
McDowell Mohave-Apache Indian Community, the Salt River
Pima-Maricopa Indian Community and the Gila River Indian
Community.
(iii) The Corporation has filed a
statement of claimant to assert its interest in the water
exchange agreement with the Salt River Valley Water Users'
Association by virtue of which it diverts from the Black River
water claimed by the Association and repays the Association
with water impounded in Show Low Lake and Blue Ridge Reservoir
on the Little Colorado River Watershed, and to assert its
interest in "water credits" to which the Corporation is
entitled as a result of its construction of the Horseshoe Dam
on the Verde River.
(iv) The Salt River Pima-Maricopa
Indian Community, Salt River Valley Water Users' Association,
the principal Salt River Valley Cities, the State of Arizona
and others have negotiated a settlement as among themselves
for the Verde and Salt River system. The settlement has been
approved by Congress, the President and the Arizona Superior
Court. Under the settlement, the Salt River Pima-Maricopa
Indian Community waived all water claims it has against all
other water claimants (including the Corporation) in Arizona.
(v) Active proceedings with respect
to other claimants have not yet commenced in this
adjudication.
(c) The Verde River System and Source Adjudication:
(i) Petition was filed by the Salt
River Valley Water Users' Association on or about February 24,
1976, and process has been served. Virtually all statements of
claimant have been filed.
(ii) The principal parties, in
addition to the Corporation, are the petitioner, the Fort
McDowell Mohave-Apache Indian Community, the Payson Community
of Yavapai Apache Indians, the Salt River Pima-Maricopa Indian
Community, the Gila River Indian Community, the United States
on its own behalf and on behalf of those Indian communities,
and the State of Arizona.
(iii) This proceeding could affect,
among other things, the Corporation's Horseshoe Dam "water
credits" with the Salt River Valley Water Users' Association
resulting from its construction of the Horseshoe Dam on the
Verde River. (See the Black River water exchange referred to
in Paragraph II.A. 2.(b)(iii) above.) The Corporation has
filed statements of claimant with respect to Horseshoe Dam and
water claims associated with the former operations of the
United Verde Branch.
(iv) The Fort McDowell Mohave-Apache
Indian Community, Salt River Valley Water Users' Association,
the principal Salt River Valley Cities, the State of Arizona
and others have negotiated a settlement as among themselves
for the Verde River system. This settlement has been approved
by Congress, the President and the Arizona Superior Court.
Under this settlement, the Fort McDowell Mohave-Apache Indian
Community waived all water claims it has against all other
water claimants (including the Corporation) in Arizona.
B. The following proceedings involving water rights
adjudication are pending in the U.S. District Court for the District of
Arizona:
1. On June 29, 1988, the Gila River Indian Community
filed a complaint-in-intervention in United States v. Gila Valley
Irrigation District, et al., Globe Equity No. 59 (D. Ariz.). The
underlying action was initiated by the United States in October 1925 to
determine conflicting claims to water rights in certain portions of the
Gila River watershed. Although the Corporation was named and served as
a defendant in that action, it was dismissed without prejudice as a
defendant in March 1935. In June 1935, the Court entered a decree
setting forth the water rights of numerous parties, but not those of
the Corporation. The Court retained, and still has, jurisdiction of the
case. The complaint-in-intervention does not name the Corporation as a
defendant; however, it does name the Gila Valley Irrigation District as
a defendant. Therefore, the complaint-in-intervention could affect the
approximately 3,000 acre-feet of water that the Corporation diverts
annually from Eagle Creek, Chase Creek or the San Francisco River
pursuant to the agreement between the Corporation and the Gila Valley
Irrigation District.
2. On December 30, 1982, the Gila River Indian Community
initiated an action styled Gila River Indian Community v. Gila Valley
Irrigation District, et al., No. CIA 82-2185 (D. Ariz.), complaining
about allegedly improper uses by approximately 17,000 named defendants
of "water from within the Gila River watershed." The Corporation was
named as a defendant in the complaint, but it has not yet been served
with process. The complaint seeks an injunction restraining future uses
of water that interfere with the alleged prior rights of the Gila River
Indian Community, as well as compensatory and punitive damages in an
unspecified amount.
3. Prior to December 1982, various Indian tribes filed
several suits in the U.S. District Court for the District of Arizona
claiming prior and paramount rights to use waters which are presently
being used by many water users, including the Corporation, and claiming
damages for prior use in derogation of their allegedly paramount
rights. These federal proceedings have been stayed pending final
adjudication in the state courts.
III. Claims under CERCLA and related state acts involving the
Corporation have been raised with respect to the remediation of 37 waste
disposal and other sites. Most are sites where the Corporation has received
information requests or other indications that the Corporation may be a
Potentially Responsible Party (PRP) under CERCLA. CERCLA is intended to expedite
the remediation of hazardous substances without regard to fault. Responsible
parties for each site include present and former owners, operators,
transporters, and generators of the substances at the site. Liability is strict,
joint and several. Because of the ambiguity of the regulations, the difficulty
of identifying the responsible parties for any particular site, the complexity
of allocating the remediation costs among them, the uncertainty as to the most
desirable remediation techniques and amount of remediation costs, and the time
period during which such costs may be incurred, the Corporation is unable to
reasonably estimate the full cost of compliance with CERCLA or equivalent state
statutes.
With respect to these 37 sites, and with the exception of the Laurel
Hill site in Maspeth, New York, where a reserve of $10.0 million has been
established, based on currently available information, which in many cases is
preliminary and incomplete, the Corporation has no reason to believe that its
ultimate responsibility for remediation costs will exceed $2.0 million at any
site and believes most will be substantially under $0.1 million. While
additional costs to the Corporation are reasonably possible, that cost,
excepting Laurel Hill, is not expected to exceed $10.0 million.
Item 4. Submission of Matters to a Vote of Security Holders
- ------------------------------------------------------------
No matters were submitted during the fourth quarter of 1996 to a vote
of security holders, through the solicitation of proxies or otherwise.
Executive Officers of Phelps Dodge Corporation
- ----------------------------------------------
The executive officers of Phelps Dodge Corporation are elected to serve
at the pleasure of its Board of Directors. As of March 1, 1997, the executive
officers of Phelps Dodge Corporation were as follows:
Age at Officer of the
Name 3/1/97 Position Corporation since
---- ------ -------- -----------------
Douglas C. Yearley 61 Chairman of the Board, President and
Chief Executive Officer 1981
J. Steven Whisler 42 Senior Vice President 1987
Manuel J. Iraola 48 Senior Vice President 1995
Ramiro G. Peru 41 Senior Vice President for
Organizational Development and
Information Technology 1995
Thomas M. St. Clair 61 Senior Vice President and
Chief Financial Officer 1989
Except as stated below, all of the above have been officers of Phelps
Dodge Corporation for the past five years.
Mr. Iraola was elected Senior Vice President in January 1995. Prior to
his election, Mr. Iraola was President of Phelps Dodge International
Corporation, the largest Phelps Dodge Industries' company, a position he held
since 1992. Prior to that time, he was Senior Vice President and Chief Financial
Officer of Columbian Chemicals Company, acquired by Phelps Dodge in 1986.
Mr. Peru was elected Senior Vice President for Organizational
Development and Information Technology in January 1997. Prior to his election,
Mr. Peru was Vice President and Treasurer of Phelps Dodge Corporation, a
position he held since 1995. Prior to that time, he was Vice President of Phelps
Dodge Mining Company.
<PAGE>
Part II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters
- ----------------------------------------------------------------------------
The information called for by Item 5 appears in Management's Discussion
and Analysis in this report.
Item 6. Selected Financial Data
- --------------------------------
(In millions except per share amounts)
1996 1995 1994 (a) 1993 1992 (b/c)
---- ---- -------- ---- ----------
Sales and other
operating revenues $ 3,786.6 4,185.4 3,289.2 2,595.9 2,579.3
Income before cumulative
effect of accounting
changes $ 461.8 746.6 271.0 187.9 301.6
Per common share $ 6.97 10.65 3.81 2.66 4.28
Cumulative effect of
accounting changes $ - - - - (79.9)
Per common share $ - - - - (1.13)
Net income $ 461.8 746.6 271.0 187.9 221.7
Per common share $ 6.97 10.65 3.81 2.66 3.15
Total assets $ 4,816.4 4,645.9 4,133.8 3,720.9 3,441.2
Long-term debt $ 554.6 613.1 622.3 547.3 373.8
Dividends per common
share $ 1.95 1.80 1.69 1.65 1.61
(a) Reported 1994 net income of $271.0 million ($3.81 per common share)
includes income of $362.7 million ($5.10 per common share) less
non-recurring after-tax charges in the fourth quarter totaling $91.7
million ($1.29 per common share) reflecting additional provisions for
estimated future costs associated with environmental matters and
estimated losses on the disposition of certain operating facilities.
(b) 1992 includes a non-taxable gain of $36.4 million (52 cents per common
share) on a subsidiary's stock issuance from two Sumitomo companies'
acquisition of a 20 percent interest in the Candelaria copper project
in Chile.
(c) Includes one-time, after-tax charges in 1992 for the adoption of new
accounting methods for postretirement and postemployment benefits (SFAS
No. 106 and SFAS No. 112) and income taxes (SFAS No. 109).
Note: See Management's Discussion and Analysis for a discussion of the effect
on the Corporation's results of material changes in the price the
Corporation receives for copper or in its unit production costs.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS
- ---------------------------------------------
Phelps Dodge reported 1996 consolidated net income of $461.8 million, or $6.97
per common share. This amount compares with 1995 net income of $746.6 million,
or $10.65 per common share. The 1996 amount includes an after-tax charge of
approximately $10.7 million, or 16 cents per share, resulting from a 1996 fourth
quarter reclamation provision and interest charges related to a Court ordered
rescission of a 1986 sale of property. The 1995 amount includes an after-tax
gain of $16.6 million, or 24 cents per share, from the sale of Columbian
Chemicals Company's MAPICO division.
The Corporation reported 1994 income of $362.7 million, or $5.10 per
common share, less non-recurring after-tax charges in the fourth quarter of
$91.7 million, or $1.29 per common share, that reduced reported 1994 net income
to $271.0 million, or $3.81 per common share. The 1994 non-recurring charges
primarily reflected additional provisions for estimated future costs associated
with environmental matters and for estimated losses on the disposition of
certain operating facilities. Note 2 to the Consolidated Financial Statements
contains further information to which reference should be made for a fuller
understanding of the 1994 non-recurring charges.
The Corporation's consolidated financial results for the last three
years are summarized below (in millions except per common share amounts):
- --------------------------------------------------------------------------------
1996 1995 1994
---- ---- ----
Sales and other operating revenues $ 3,786.6 4,185.4 3,289.2
Operating income $ 712.9 1,100.5 400.4
Net income $ 461.8 746.6 271.0
Net income per common share $ 6.97 10.65 3.81
- --------------------------------------------------------------------------------
A significant factor influencing the Corporation's 1996 results was the
lower price of copper, the Corporation's principal product. The New York
Commodity Exchange (COMEX) spot price per pound of copper cathode, upon which
the Corporation bases its selling price, averaged $1.06 in 1996, compared with
$1.35 in 1995 and $1.07 in 1994. The COMEX price averaged $1.09 per pound for
the first two months of 1997, and closed at $1.16 on March 6, 1997.
Any material change in the price the Corporation receives for copper,
or in its unit production costs, has a significant effect on the Corporation's
results. The Corporation's present share of annual production is approximately
1.5 billion pounds of copper. Accordingly, each 1 cent per pound change in the
average annual copper price received by the Corporation, or in average annual
unit production costs, causes a variation in annual operating income before
taxes of approximately $15 million.
Depending on market circumstances, the Corporation may periodically
purchase or sell various copper option contracts to mitigate the risk of adverse
price fluctuations on a portion of its expected future mine production. With
respect to 1996 production, the Corporation had contracts that provided a
combination of minimum and maximum quarterly average London Metal Exchange (LME)
prices for 185 million pounds of third quarter copper production that resulted
in payments of $3.1 million to Phelps Dodge. Similar contracts ensuring minimum
prices for 790 million pounds of 1996 copper production expired without payment
to Phelps Dodge. During the 1996 third quarter, the Corporation sold copper
price protection contracts that covered 94 million pounds of anticipated
production in the fourth quarter of 1996 and 85 million pounds of anticipated
production in the first quarter of 1997. This resulted in immediate cash
payments to the Corporation of $15.6 million. Consequently, $8.8 million for
1996 fourth quarter contracts was recognized in income during the fourth quarter
and $6.8 million for 1997 first quarter contracts was deferred and will be
recognized in income during the 1997 first quarter.
During 1995, the Corporation had contracts that provided minimum
quarterly average LME prices of 80 cents per pound for approximately 640 million
pounds of copper that expired on December 31, 1995, without payment to Phelps
Dodge. In addition, the Corporation had contracts that provided minimum
(approximately 95 cents) and maximum (approximately $1.33) LME prices per pound
for approximately 650 million pounds of copper. These contracts expired on
December 31, 1995, with Phelps Dodge making payments totaling $1.3 million to
the financial institutions involved. During 1994, contracts that provided the
Corporation with minimum average LME copper prices of 75 cents per pound for
about 244 million pounds of production expired without payment to Phelps Dodge.
With respect to 1997 production, as of March 6, 1997, the Corporation
had net positions in place with several financial institutions that provide for
a minimum first quarter average price of 90 cents per pound for 85 million
pounds of copper cathode. These minimum prices are based on the quarterly
average LME price. If average quarterly LME prices fall below the minimum
prices, the financial institutions will be obligated to pay Phelps Dodge the
difference.
The Corporation's objective and practice is to sell its copper at a
price based on the COMEX average price in the month of shipment. However, a few
customers request a firm price as of a specified date prior to or during the
month of shipment. In such transactions, the Corporation usually hedges such
sales commitments by entering into copper futures and copper swap contracts that
approximate the shipment quantities and periods. The copper futures contracts
are then liquidated during the month of shipment which generally results in the
realization of the COMEX average monthly price for copper shipped. This
liquidation process involves the use of offsetting futures contracts. Therefore,
the notional value, which represents the absolute sum of all outstanding copper
futures contracts, is not an accurate measurement of risk to the Corporation
from the use of such derivative financial instruments. Swap contracts are
settled at the COMEX average monthly price in the month copper is shipped. At
December 31, 1996, the Corporation had futures and swap hedge contracts in place
for approximately 149 million pounds of copper with an approximate net value of
$143 million and an aggregate notional value of approximately $156 million. The
Corporation had deferred unrecognized gains of $2.3 million on its futures and
swap contracts at December 31, 1996. With respect to 1995, at year end the
Corporation had futures and swap hedge contracts in place for approximately 104
million pounds of copper with an approximate net value of $125 million and an
aggregate notional value of approximately $125 million. At December 31, 1995,
the Corporation had deferred unrecognized losses on its futures and swap
contracts of $2.4 million as the offsetting customer transactions had not
matured.
The Corporation periodically enters into forward exchange and currency
option contracts to hedge certain recorded transactions, firm commitments and
other anticipated foreign currency transactions. The Corporation does not hold
these financial instruments for trading purposes. The objective of the
Corporation's foreign currency hedging activities is to protect the Corporation
from the risk that the eventual equivalent dollar cash flows resulting from
transactions denominated in foreign currencies will be adversely affected by
changes in exchange rates. During 1996, recorded, committed and anticipated
foreign currency transactions that the Corporation had hedged did not exceed
$166 million and totaled $141 million at year end. The Corporation did not have
any deferred unrecognized gains or losses on its foreign exchange contracts at
December 31, 1996, or December 31, 1995. Notes 1 and 19 to the Consolidated
Financial Statements contain further information to which reference should be
made for a fuller understanding of the Corporation's policy for hedging foreign
currency transactions.
Consolidated 1996 revenues were $3,786.6 million, compared with
$4,185.4 million in 1995. The 1996 decrease was a result of lower average copper
prices and lower sales volumes of wheels and rims. The decrease was partially
offset by higher sales volumes of copper, carbon black and wire and cable
products. The increase in consolidated revenues from $3,289.2 million in 1994 to
$4,185.4 million in 1995 resulted from higher average copper prices, increased
volumes of copper sold from mine production, and higher prices and sales volumes
for carbon black, wheels and rims, and wire and cable products.
Phelps Dodge's results for 1996, 1995 and 1994 can be meaningfully
compared by separate reference to its reporting segments, Phelps Dodge Mining
Company and Phelps Dodge Industries. Phelps Dodge Mining Company includes the
Corporation's worldwide copper operations from mining through rod production,
marketing and sales, other mining operations and investments, and worldwide
mineral exploration and development programs. Phelps Dodge Industries includes
the Corporation's specialty chemicals operations, its wheel and rim business,
and its wire and cable operations.
Within each such segment, significant events and transactions have
occurred which, as indicated in the separate discussions presented below, are
material to an understanding of the particular year's results and to a
comparison with results of the other periods. Note 20 to the Consolidated
Financial Statements contains further information to which reference should be
made for a fuller understanding of the following discussion and analysis.
Statistics on reserves and production can be found in Part I, Items 1 and 2 of
this report.
RESULTS OF PHELPS DODGE MINING COMPANY
Phelps Dodge Mining Company is an international business comprising a group of
companies involved in vertically integrated copper operations including mining,
concentrating, electrowinning, smelting and refining, rod production, marketing
and sales, and related activities. Copper is sold primarily to others as rod,
cathode or concentrates, and as rod to the Phelps Dodge Industries segment. In
addition, Phelps Dodge Mining Company at times smelts and refines copper and
produces copper rod for others on a toll basis. Phelps Dodge Mining Company also
produces gold, silver, molybdenum and copper chemicals as byproducts, and
sulfuric acid from its air quality control facilities. This segment also
includes the Corporation's other mining operations and investments (including
fluorspar, silver, lead and zinc operations) and its worldwide mineral
exploration and development programs.
- --------------------------------------------------------------------------------
1996 1995 1994
---- ---- ----
Copper (from own mines - thousand tons) *
Production 770.4 712.7 572.8
Deliveries 771.6 696.6 560.6
COMEX average spot copper price
per pound - cathodes $ 1.06 1.35 1.07
(millions of dollars)
Sales and other operating revenues $ 2,091.1 2,488.7 1,820.7
Operating income $ 526.6 896.8 326.4
- ----------------
* The Corporation's worldwide copper production and deliveries shown in
the above table exclude the amounts attributable to (i) the 15 percent
undivided interest in the Morenci, Arizona, copper mining complex held
by Sumitomo Metal Mining Arizona, Inc. (Sumitomo), (ii) the one-third
partnership interest in Chino Mines Company in New Mexico held by
Heisei Minerals Corporation (Heisei), and (iii) the 20 percent interest
in Candelaria held by SMMA Candelaria, Inc., a jointly owned indirect
subsidiary of Sumitomo Metal Mining Co., Ltd. and Sumitomo Corporation.
Excluded production amounts for 1996, 1995 and 1994 were 76,500 tons,
65,600 tons and 61,000 tons produced at Morenci for the account of
Sumitomo, 56,200 tons, 56,200 tons and 53,200 tons produced at Chino
for the account of Heisei and 30,200 tons, 33,100 tons and 6,200 tons
at Candelaria for the account of Sumitomo.
- --------------------------------------------------------------------------------
Phelps Dodge Mining Company reported 1996 operating income of $526.6
million which included a pre-tax charge of $10.0 million resulting from a fourth
quarter reclamation provision related to a Court ordered rescission of a 1986
sale of property. This compares with 1995 operating income of $896.8 million.
Earnings in 1994 of $420.8 million were reduced to $326.4 million after
reflecting $94.4 million of fourth quarter non-recurring pre-tax charges
applicable to its operations. The decrease in 1996 operating income reflected
lower average copper prices, partially offset by higher volumes of copper sold
from mine production. The increase in operating earnings in 1995 compared with
1994 resulted from higher average copper prices and higher volumes of copper
sold from mine production, especially from Candelaria which commenced operation
in the 1994 fourth quarter. Unit production costs of copper in 1996 were
slightly higher than in 1995, principally as a result of increased depreciation
charges from recent capital projects, increased mining expenses and costs
associated with a maintenance overhaul at the Hidalgo smelter. Unit production
costs of copper generally continued to reflect high levels of production,
ongoing cost containment programs and increasing amounts of copper obtained
through the solution extraction/electrowinning (SX/EW) process, including the
start-up of the Southside SX/EW project at the Morenci mine in the 1995 third
quarter, at favorable incremental costs.
The Candelaria mine is located near Copiapo in the Atacama Desert of
northern Chile. Phelps Dodge Mining Company completed construction and commenced
operations at Candelaria in October 1994, and achieved full production in 1995.
Phelps Dodge owns an 80 percent interest in Candelaria and a jointly owned
indirect subsidiary of Sumitomo Metal Mining Co., Ltd. and Sumitomo Corporation
owns a 20 percent interest. The project consists of an open-pit mine,
concentrator, port and associated facilities. On May 1, 1996, the Corporation
announced plans to expand concentrator throughput at Candelaria. At full
capacity, the $337 million expansion (the Corporation's share will be $270
million with the remainder provided by its co-participant) will result in annual
copper production of 400 million to 450 million pounds during the first few
years of the post-expansion mine life; the average ore grade is expected to
drop, with a corresponding decrease in production, in subsequent years. The
expansion will include increased mining activity, the installation of a second
semi-autogenous (SAG) mill line and new and expanded concentrating facilities,
and the addition of more than 200 employees. Construction began in the third
quarter of 1996 with new production scheduled to come on line by mid-1998. As a
result of the expansion, the estimated mine life of Candelaria will be reduced
from 35 years of production to 19 years.
During the third quarter of 1995, Phelps Dodge Mining Company completed
construction and commenced operations at its $200 million Southside project (the
Corporation's share was $170 million with the remainder provided by its
co-participant) at its Morenci mine in southeastern Arizona. This project has
increased Phelps Dodge's share of annual electrowon copper production capacity
by approximately 130 million pounds. The expansion involved the development of
the Southside ore deposit adjacent to the existing open-pit mine at Morenci. The
expansion included the construction of an electrowinning tankhouse, the
expansion of existing solution extraction plants, the upgrading of
infrastructure systems and the addition of mining equipment.
Copper unit production costs generally have been stable for the
three-year period ended December 31, 1996, primarily as a result of high levels
of production of low-cost cathode copper at SX/EW plants in Morenci, Arizona;
Tyrone, New Mexico; and Santa Rita, New Mexico. In 1996, the Corporation
produced a total of 408,000 tons of cathode copper at its SX/EW facilities,
compared with 364,200 tons in 1995 and 325,800 tons in 1994. The SX/EW method is
a cost-effective process of extracting copper from certain types of ores. As
used by the Corporation in conjunction with its conventional concentrating,
smelting and refining, SX/EW is a major factor in its continuing efforts to
maintain internationally competitive costs.
The Corporation expects to operate the Burro Chief SX/EW plant near
Tyrone, New Mexico, for at least the next 10 years. Exploration continues in an
effort to identify further mineral resources.
The Corporation has additional sources of copper that could be placed
in production should market circumstances warrant. Permitting and significant
capital expenditures would be required, however, to develop such additional
production capacity.
In 1996, operations outside the United States provided 8 percent of
Phelps Dodge Mining Company's sales, compared with 10 percent in 1995 and 5
percent in 1994. During the year, operations outside the United States
contributed 8 percent of the segment's operating income, compared with 19
percent in 1995 and less than 1 percent in 1994.
In December 1996, the United States District Court of the Eastern
District of New York ruled that the 1986 sale of property in Maspeth, New York,
by the Corporation to the United States Postal Service is to be rescinded. The
Court ordered the Corporation to return the $14.8 million originally paid by the
Postal Service for the property and to pay interest on the sales price for a
portion of the time since that sale. The Corporation has not yet determined
whether to appeal the Court's decision, but as a precaution, the Corporation
recorded interest charges of $5.9 million and reclamation reserves of $10.0
million in the 1996 fourth quarter. This reclamation provision was estimated
based on the Corporation's experience at other Corporate-owned properties.
The collective bargaining agreements covering approximately 625
employees at Phelps Dodge Mining Company's Chino operations in New Mexico
expired on June 30, 1996. As of March 6, 1997, employees who were covered by the
agreements have continued to work without a contract.
By a letter agreement dated September 7, 1990, the Corporation and the
San Carlos Apache Tribe agreed upon principles to settle the water claims of
that Tribe and other land use issues involving the Tribe's reservation. Since
that time, comprehensive settlement agreements among the Tribe, the Corporation
and other parties have been under negotiation. In the more recent phases of the
settlement negotiations, the Tribe has sought terms that the Corporation
believes are unacceptable and inconsistent with the principles set forth in the
September 7, 1990, letter agreement. The Tribe has also notified the Corporation
to make preparations to stop using the reservation for water transportation by
July 1997, at the latest. The Corporation obtains water for its Morenci complex
from several sources, including through the operation of a pump station on
reservation lands adjacent to the Black River, and uses the natural channel of
Eagle Creek, which is partially located on the reservation, to transport water
from Black River and certain other sources to its Morenci complex. The
Corporation believes that it holds valid rights of way and easements and has
other legal rights sufficient to allow for the continued operation of the Black
River pump station on reservation lands and for the use of Eagle Creek. However,
if the Corporation were to lose the use of the Black River pump station, and was
unable to transport water using the natural channel of Eagle Creek, that might
adversely affect production at the Morenci complex depending upon the
availability of alternative sources of water. The parties are continuing to
discuss all of these matters. The federal legislation authorizing settlement of
the Tribe's water rights claims with the Corporation and the other parties to
the proceeding has been extended for a six-month period expiring June 30, 1997.
RESULTS OF PHELPS DODGE INDUSTRIES
Phelps Dodge Industries is a business segment comprising a group of companies
that manufacture engineered products principally for the transportation, energy
and telecommunications sectors worldwide. Its operations are characterized by
products with significant market share, internationally competitive cost and
quality, and specialized engineering capabilities. This business segment
includes the Corporation's specialty chemicals operations through Columbian
Chemicals Company and its subsidiaries (Columbian Chemicals or Columbian); its
wheel and rim operations through Accuride Corporation and its subsidiaries
(Accuride); and its wire and cable and specialty conductor operations through
Phelps Dodge International Corporation and Phelps Dodge Magnet Wire Company and
their subsidiaries and affiliates.
- --------------------------------------------------------------------------------
1996 1995 1994
---- ---- ----
(millions of dollars)
Sales and other operating revenues:
Specialty chemicals $ 437.0 420.8 335.0
Wheels and Rims 307.8 357.8 333.6
Wire and Cable 950.7 918.1 799.9
------- ------- -------
$ 1,695.5 1,696.7 1,468.5
======= ======= =======
Operating income:
Specialty chemicals $ 79.8 103.9 20.0
Wheels and rims 41.4 45.6 42.3
Wire and cable 104.6 93.8 43.8
------- ------- -------
$ 225.8 243.3 106.1
======= ======= =======
- --------------------------------------------------------------------------------
Phelps Dodge Industries reported 1996 operating income of $225.8
million, compared with operating income in 1995 that was $216.5 million before a
pre-tax gain of $26.8 million from the sale of Columbian Chemicals Company's
synthetic iron oxide division (MAPICO). Increased 1996 operating income
primarily reflected the benefits of manufacturing cost reduction programs
instituted during 1995, higher sales volumes in the wire and cable business, and
continued strength in the specialty chemicals business. Earnings increases in
1995 over 1994 primarily reflected the strength of the specialty chemicals
business which saw higher average worldwide prices and higher sales volumes both
in the United States and Europe, especially from new operations in Hungary and
Spain. Increased 1995 operating income also reflected higher prices and sales
volumes in the wire and cable businesses and in the wheel and rim business
(which experienced a decline in sales volumes in the 1995 fourth quarter that
continued into 1996). Operating income in 1994 of $150.7 million was reduced to
$106.1 million by $44.6 million of 1994 fourth quarter non-recurring pre-tax
charges applicable to its facilities.
Columbian Chemicals' 1996 earnings were higher than in 1995 (excluding
the $26.8 million pre-tax gain from the sale of MAPICO) as a result of increased
carbon black sales and production volumes. North American volumes continued to
grow in both the basic rubber black and industrial black product lines. Only
limited growth was achieved in the European rubber market; however, significant
growth continued in the European specialty market. Raw material costs increased
throughout the year resulting in tighter margins. Major capital projects to
expand existing North American and European facilities are under way and
resulted in a record level of annual capital investment. Several major expansion
projects are expected to be completed during 1997.
Columbian Chemicals' 1995 earnings were higher than 1994 primarily
because of higher sales in both North America, as overall capacity continued to
tighten in the industry, and Europe. Margins in North America were favorably
affected by high operating rates and improved prices in 1995. Columbian's 1994
earnings were offset in part by a non-recurring pre-tax provision of
approximately $9 million for the closure of its plant in Hamburg, Germany, as a
result of that plant's high cost structure and environmental restrictions. This
charge was included in the 1994 fourth quarter reserve discussed in Note 2 to
the Consolidated Financial Statements.
Columbian's newer operations include a carbon black plant in Santander,
Spain, acquired in December 1994 for approximately $25 million from Repsol
Quimica S.A. The acquisition of this plant has increased the presence of Phelps
Dodge Industries in the European market and extends the ability of Columbian
Chemicals to serve customers in Spain and Portugal.
Accuride's 1996 earnings fell below 1995 earnings primarily due to an
18 percent drop in overall sales volumes, partially offset by higher prices.
North American demand for heavy trucks and trailers were the major contributors
to the drop in sales volumes. Demand for specialty products, such as light
wheels for smaller trucks and sport utility vehicles, increased partially
offsetting the effects of the downturn in the heavy truck and trailer markets.
Accuride's 1995 earnings exceeded its 1994 earnings principally as a result of
higher sales volumes and prices. In 1994, earnings reflected increased sales
volume of wheels, rims and components in response to strong demand.
Accuride had a three-year labor agreement covering approximately 690
employees at its London, Ontario, Canada, plant that expired on January 21,
1997. All employees covered by the expired agreement began an immediate strike,
and as of March 6, 1997, that strike continued. Accuride has maintained
operations with its salaried workforce and continues to supply its customers.
On September 18, 1996, Accuride and Kaiser Aluminum and Chemical
Corporation (Kaiser) announced their intent to form a joint venture company to
produce aluminum wheels for the commercial transportation industry. Accuride and
Kaiser would each own 50 percent of the new company. The joint venture is
expected to be finalized by the end of the first quarter of 1997. This venture
would replace the current arrangement under which Kaiser manufactured finished
aluminum wheels for Accuride.
Earnings in the wire and cable business increased in 1996 over 1995 as
a result of higher magnet wire sales volumes and margins in North America,
favorable results of aluminum tolling in Thailand and the 1996 second quarter
acquisition of Nesor Alloy Corporation, a leading manufacturer of high
performance conductors for the general electronics and aerospace industries. New
customers were attracted in North America by the Phelps Dodge Magnet Wire
Company expansion of its El Paso plant and the announcement of its new plant
under construction in Monterrey, Mexico. European demand for magnet wire
products also was strong in the latter half of 1996 after a slow start. The
increase in earnings in 1996 came about despite the continuation of economic
difficulties in Venezuela.
Wire and cable earnings increases in 1995 over 1994 generally reflected
higher sales volumes and improved margins. Earnings for the U.S. specialty
conductor business improved in 1995 as manufacturing cost reduction programs and
an administrative reorganization began to take effect.
Earnings in the wire and cable business in 1994 reflected economic
difficulties in Venezuela and economic slowdowns in Mexico and Chile. These
conditions resulted in additional costs associated with complying with strict
foreign exchange controls instituted in 1994 by the Venezuelan government, and a
pre-tax loss of $7.0 million on the sale of the Corporation's 40 percent
interest in its Mexican associate company CONELEC S.A. de C.V. Earnings in 1994
also reflected a pre-tax provision of $20.0 million for the impairment of value
of the Corporation's U.S. specialty conductor operations.
The loss on the sale of CONELEC and the provision for impairment of
value of the specialty conductor business are included in the 1994 fourth
quarter reserve discussed in Note 2 to the Consolidated Financial Statements.
The effect of these charges on earnings was offset in part by higher sales
volumes, particularly in the North American magnet wire market and the telephone
cable market in Thailand, and improved margins for magnet wire in North America
where demand in the housing, automotive and major home appliance industries
allowed Phelps Dodge Magnet Wire Company to operate at full capacity throughout
the year. Sales volumes in 1994 also benefited from the acquisition in March of
two U.S. magnet wire facilities.
In May 1996, Phelps Dodge acquired Nesor Alloy Corporation, for
approximately $35 million. In addition, Phelps Dodge increased its ownership
interest in Metal Fabricators of Zambia Limited (ZAMEFA) from 20 percent to 51
percent. The Corporation's interest in these companies is managed by Phelps
Dodge International Corporation, a wholly owned subsidiary.
On August 7, 1996, the Corporation announced plans to construct a
magnet wire manufacturing plant in Monterrey, Mexico. Construction of the $42.0
million project began in 1996 with commercial production expected in early 1998.
In response to demand by Japanese-owned companies located in North
America, SPD Magnet Wire Company, a joint venture of Phelps Dodge Magnet Wire
Company and Sumitomo Electric Industries, Ltd., each owning a 50 percent
interest, expanded its plant in Edmonton, Kentucky. The capacity of this
facility has increased by 75 percent after new equipment was installed in late
1995 through early 1996.
In March 1994, Phelps Dodge Magnet Wire Company acquired for
approximately $52 million certain assets of a plant that manufactures fine-gauge
magnet wire in Laurinburg, North Carolina, from Rea Magnet Wire Company, Inc.
(Rea), and certain assets of a magnet wire manufacturing plant in El Paso,
Texas, from Texas Magnet Wire Company, an affiliate of Rea and Fujikura
International, Inc. The El Paso facility was expanded in 1996 doubling its
previous capacity. The capacity of the Laurinbug facility is also expected to
double upon completion in 1999 of a current plant expansion program.
In 1996, operations outside the United States provided 50 percent of
Phelps Dodge Industries' sales, compared with 51 percent in 1995 and 48 percent
in 1994. During the year, operations outside the United States contributed 57
percent of the segment's operating income, compared with 53 percent in 1995
(after excluding from U.S. earnings the $26.8 million pre-tax gain on the sale
of Columbian Chemicals' MAPICO division) and 52 percent in 1994.
OTHER MATTERS RELATING TO THE STATEMENT OF CONSOLIDATED OPERATIONS
The Corporation's 1996 exploration and research and development expense was
$83.9 million, compared with $73.2 million in 1995 and $53.0 million in 1994.
The increase in 1996 primarily resulted from increased exploration expenditures
at the Corporation's U.S. mining operations. The 1994 to 1995 increase primarily
resulted from increased spending for exploration in South and Central America.
The Corporation reported net interest expense in 1996 of $66.1 million,
compared with $62.0 million in 1995 and $36.6 million in 1994. Increased 1996
interest expenses principally resulted from a $5.9 million interest charge
resulting from the 1996 Court ordered rescission of a 1986 sale of property.
Increased 1995 net interest expense principally resulted from the cessation of
capitalization of interest costs for the Candelaria project in Chile reflecting
the substantial completion of construction and development in the 1994 fourth
quarter. The 1995 increase also reflected interest expense on second half 1994
borrowings at Candelaria, and interest expense on increased short-term
borrowings at the Corporation's international wire and cable operations to
finance working capital requirements. Included in the 1996 and 1995 amounts were
foreign currency exchange gains of $8.0 million and $8.1 million, respectively,
reflecting the remeasurement of Venezuelan local currency debt after major
devaluations of the Bolivar.
The Corporation's 1996 miscellaneous income, net of miscellaneous
expense, was $40.7 million, compared with $37.2 million in 1995 and $11.3
million in 1994. The increase in 1996 primarily resulted from an increase of
$2.8 million in dividends received from the Corporation's 13.9 percent minority
interest in Southern Peru Copper Corporation. The increase from 1994 to 1995
primarily resulted from higher interest income earned on cash and short-term
investments. Miscellaneous income in 1995 also included an increase of $10.1
million in dividends received from Southern Peru Copper Corporation.
For the year ended December 31, 1996, the Corporation recorded a
provision for taxes of $220.0 million (an effective rate of approximately 32.0
percent). This compares with a 1995 provision for taxes of $322.7 million (an
effective rate of approximately 30.0 percent) and a 1994 provision of $104.7
million (an effective rate of approximately 27.9 percent). The 1996 effective
rate was higher than 1995 primarily due to the effect of a change in the income
mix between U.S. and international operations. The 1995 effective rate was
higher than in 1994 primarily as a result of a decrease in the U.S. tax benefit
for percentage depletion. Despite higher average realized copper prices in 1995,
the benefit from the Corporation's allowable deduction for percentage depletion
decreased from 1994 due to the first full year of operating results at
Candelaria which are not subject to percentage depletion. (See Note 6 to the
Consolidated Financial Statements for a reconciliation of the Corporation's
effective tax rates to statutory rates.)
The Corporation's federal income tax returns for the years 1992, 1993
and 1994 are currently under examination. The Corporation has received
substantial proposed adjustments from the Internal Revenue Service relating to
the Corporation's federal income tax liability for the years 1990 and 1991 and
has filed a protest with the appropriate authorities. These years are currently
under consideration by the appeals division of the Internal Revenue Service.
Management believes that it has made adequate provision so that final resolution
of the issues involved, including application of those determinations to
subsequent open years, will not have a material adverse effect on the
consolidated financial condition or results of operations of the Corporation.
However, settlement of these issues could involve material tax and interest
payments with respect to the open years, a substantial part of which would
involve timing differences. The Corporation does not agree with these proposed
adjustments and expects either to substantially settle them with the Internal
Revenue Service or litigate the issues involved.
Under current financial accounting standards, any significant
year-to-year movement in the rate of interest on long-term, high-quality
corporate bonds necessitates a change in the discount rate used to calculate the
actuarial present value of the Corporation's accumulated pension and other
postretirement benefit obligations. The Corporation maintained its discount rate
at 7.25 percent at December 31, 1996, as a result of long-term interest rates
staying at essentially the same rate as in 1995. Better-than-expected returns on
plan assets during 1996 increased the excess of plan assets over pension
liabilities at December 31, 1996. Other estimated postretirement benefit
obligations of the Corporation decreased by $6 million as a result of a decrease
in the assumed annual rate of increase in the per capita cost of covered health
care benefits over the next 12 years averaging 0.6 percent per year. For a
further discussion of these issues, see Notes 15 and 16 to the Consolidated
Financial Statements.
CHANGES IN FINANCIAL CONDITION; CAPITALIZATION
At the end of 1996, the Corporation had cash and short-term investments of
$470.1 million, compared with $608.5 million at the beginning of the year. The
Corporation's operating activities provided $837.5 million of cash during the
year which was used along with a portion of existing cash balances to fund its
investing activities, dividend payments on its common stock and purchases of its
common stock.
Investing activities during 1996 included capital expenditures of
$513.0 million, compared with $404.9 million in 1995 and $355.0 million in 1994.
The 1996 capital expenditures included $76 million for the expansion of
Candelaria. Investing activities in 1996 also included approximately $35 million
for the acquisition of Nesor. The 1995 capital expenditures included $40 million
for certain mining properties owned by Azco Mining, Inc. and its subsidiaries,
comprising the Sanchez property in southeastern Arizona and a 70 percent
interest in the Piedras Verdes property in Mexico. Investing activities in 1995
also included cash proceeds of $45.0 million from the divestiture of Columbian
Chemicals Company's synthetic iron oxide facility (MAPICO). Investments in
subsidiaries in 1994 included the acquisition of two U.S. magnet wire facilities
for approximately $52 million and the acquisition of a carbon black plant in
Spain for approximately $25 million. Investing activities in 1994 also included
cash proceeds of $15.0 million from the divestiture of the Corporation's 40
percent interest in its Mexican associate company, CONELEC S.A. de C.V., and
$8.0 million from the issuance of shares to a minority investor in the
Corporation's majority-owned affiliate in Venezuela.
The Corporation expects capital outlays in 1997 to be approximately
$500 million for Phelps Dodge Mining Company (including approximately $175
million for the Candelaria expansion project) and approximately $200 million for
Phelps Dodge Industries. These capital outlays will be funded from cash
reserves, operating cash flow and from borrowings.
The $3.0 million increase in dividend payments on the Corporation's
common shares, from $125.6 million in 1995 to $128.6 million in 1996,
principally resulted from an 11 percent increase in the quarterly dividend rate
in the 1996 second quarter (from 45 cents per common share to 50 cents per
common share), partially offset by the effect of the reduced number of common
shares outstanding.
The Corporation purchased 4,297,300 of its common shares in 1996 at a
total cost of $273.2 million. There were 64,711,000 common shares outstanding on
December 31, 1996. On March 6, 1996, the Corporation announced that its current
share purchase authorization had been increased from 5 million shares (buy back
program authorized on March 7, 1995) to a total of 10 million shares. Through
March 6, 1997, the Corporation purchased a total of 7,393,400 of its common
shares under the program, leaving an additional 2,606,600 shares authorized for
purchase. The Corporation will continue to make purchases in the open market as
circumstances warrant, and will also consider purchasing shares in privately
negotiated transactions.
The Corporation's total debt was $659.3 million at December 31, 1996,
compared with $696.5 million at the end of 1995. Total debt decreased primarily
as a result of the prepayment of Candelaria's Chilean peso-denominated debt (see
below). The ratio of total debt to total capitalization was 18.8 percent at the
end of 1996, compared with 20.2 percent at the end of 1995.
During the 1995 second quarter, the Corporation's majority-owned
subsidiary, Compania Contractual Minera Candelaria (CCMC), satisfied all
operating, financial, construction and legal tests and conditions as set forth
in the completion agreement associated with the $290.0 million project financing
of its Candelaria mine in Chile. Borrowings under these debt facilities are now
non-recourse to Phelps Dodge. Financing agreements for the $290 million debt
were executed during 1993. The debt carries a 13-year maturity, and comprises
$200 million of floating rate dollar-denominated debt, $60 million of fixed rate
dollar-denominated debt, and $30 million of floating rate debt denominated in
Chilean pesos. This floating rate peso-denominated debt was prepaid in December
1996 at a cost of $37.6 million including exchange losses and prepayment
penalties. The agreements provide for a nine and one-half year repayment period,
starting in 1997. As the Corporation consolidates its interest in majority-owned
mining joint ventures using the proportional consolidation method, only 80
percent of this debt and related financing charges have been reflected in the
Corporation's consolidated financial statements. The Corporation also caused
CCMC to enter into an interest rate protection agreement with certain financial
institutions to limit the effect of increases in the cost of the $200 million of
floating rate dollar debt. Under the terms of the agreement, the project will
receive payments from these institutions if the six-month London Interbank
Offered Rate (LIBOR) exceeds 9 percent prior to December 31, 2001, and 11
percent during the two subsequent years ending December 31, 2003.
In the 1997 first quarter, CCMC entered into agreements with certain
lenders to provide up to $185 million of floating rate dollar-denominated debt
financing for the expansion of the Candelaria mine. At the same time, CCMC
entered into an agreement with a lender to provide $30 million of floating rate
dollar-denominated debt financing to refinance the Chilean peso debt that was
prepaid in December 1996. All of these borrowings will be non-recourse to Phelps
Dodge, which will reflect only 80 percent of any borrowings and related
financing charges under these agreements in its consolidated financial
statements. The agreements provide for a 10-year repayment period starting in
1998.
During 1993, the Corporation's 60-percent-owned Hungarian subsidiary,
Columbian Tiszai Carbon Ltd. (CTC), borrowed $33.5 million under facilities from
the Overseas Private Investment Corporation (OPIC) and the European Bank for
Reconstruction and Development (EBRD) to finance construction of a carbon black
manufacturing plant. Both facilities are without recourse to Columbian Chemicals
Company since the satisfaction of completion agreements with the two lenders in
1996. In the 1997 first quarter, CTC refinanced the loans with local banks at
more advantageous interest rates and better terms. These new facilities are
without recourse to Columbian Chemicals Company.
During 1994, the Corporation issued $81.1 million of tax-exempt,
unsecured 5.45 percent obligations due in 2009. The proceeds from the issue were
used to retire the Corporation's 5.75 percent to 6.25 percent Series A and B
notes due in the years 1994 through 2004.
An existing revolving credit agreement between the Corporation and
several lenders was amended on June 4, 1996. The agreement, as amended and
restated, permits borrowings of up to $500 million from time to time until its
scheduled maturity on June 4, 2001. The agreement allows for two one-year
renewals beyond the scheduled maturity date if the Corporation requests and
receives approval from at least two-thirds of the lenders involved. Interest is
payable at a fluctuating rate based on the agent bank's prime rate or a fixed
rate, based on the Eurodollar Interbank Offered Rate or at fixed rates offered
independently by the several lenders, for maturities of from seven to 360 days.
This agreement provides for a facility fee of eight basis points (0.08 percent)
on total commitments. The agreement requires the Corporation to maintain a
minimum consolidated tangible net worth of $1.1 billion and limits indebtedness
to 50 percent of total consolidated capitalization. There were no borrowings
under this agreement at either December 31, 1996, or December 31, 1995.
The Corporation had other lines of credit totaling $100.0 million at
December 31, 1996, and December 31, 1995. These facilities are subject to
agreement as to availability, terms and amount. There were no borrowings
outstanding under these lines of credit at either December 31, 1996, or December
31, 1995.
The Corporation had $66.5 million in short-term borrowings, all by its
international operations, at December 31, 1996, compared with $66.6 million at
December 31, 1995. The weighted average interest rate on this debt at December
31, 1996, and December 31, 1995, was 15.3 percent and 18.5 percent,
respectively.
Accuride Canada Inc. has a revolving credit facility that permits
borrowings of up to U.S. $25.0 million. Interest on these borrowings is payable
at a fluctuating rate based on the agent bank's Base Rate Canada, or a fixed
rate based on LIBOR, for maturities of one week to six months. This facility,
which is subject to renewal annually, provides for a standby fee of one-eighth
of 1 percent of the $25.0 million. There were no borrowings outstanding under
this facility at either December 31, 1996, or December 31, 1995.
The current portion of the Corporation's long-term debt, scheduled for
payment in 1997, is $38.2 million including $14.0 million for its international
manufacturing operations and $24.2 million primarily for its international
mining operations.
During 1996, decreases in current assets (exclusive of cash and
short-term investments and adjustments for foreign currency exchange rate
changes) together with increases in current liabilities (exclusive of current
debt and adjustments for foreign currency exchange rate changes) resulted in a
$64.0 million decrease in net working capital. This decrease in net working
capital resulted principally from a $10.7 million decrease in prepaid expenses,
a $38.3 million increase in accounts payable and a $10.0 million increase in
accrued expenses. The $10.7 million decrease in prepaid expenses was primarily
the result of decreases in hedging and deferred income for 1997 first quarter
copper price protection contracts that were sold during the 1996 third quarter.
The $38.3 million increase in accounts payable was attributable to timing of raw
materials and equipment purchases. The accrued expense increase was primarily a
result of accruals for contractor expenses for the Candelaria expansion project.
During 1995, increases in current assets (exclusive of cash and
short-term investments and adjustments for foreign currency exchange rate
changes) together with decreases in current liabilities (exclusive of current
debt and adjustments for foreign currency exchange rate changes) resulted in an
$84.2 million increase in net working capital. This increase principally
resulted from a $55.5 million decrease in accounts payable, a $29.5 million
decrease in accrued income taxes, a $15.8 million increase in inventories and an
$11.9 million increase in supplies, partially offset by a $36.8 million increase
in accrued expenses. The $55.5 million decrease in accounts payable primarily
resulted from lower copper concentrate purchase requirements by Phelps Dodge
Mining Company's smelter operations and the timing of raw material purchases by
the Phelps Dodge Industries businesses. The $29.5 million decrease in accrued
income taxes was principally the result of approximately $22 million in
additional federal income taxes paid in the first quarter of 1995 with the
Corporation's 1994 income tax return. The $15.8 million increase in inventories
was attributable to higher inventories of copper at Phelps Dodge Mining Company,
partially offset by lower inventories at Accuride. The $11.9 million increase in
supplies was the result of increases at Candelaria and Accuride. The $36.8
million increase in accrued expenses primarily resulted from higher accruals for
copper conversion and freight charges and accruals for certain costs associated
with higher copper prices at Phelps Dodge Mining Company (higher conversion and
freight accruals are due to the higher copper inventory balances at the end of
1995), and an increase in the current portion of Corporate-wide pension
liabilities due to an increase in expected plan funding in 1996 resulting from
certain provisions of the recently enacted General Agreement on Tariffs and
Trade (GATT).
The Corporation is subject to federal, state and local environmental
laws, rules and regulations, including the Comprehensive Environmental Response,
Compensation and Liability Act of 1980 (CERCLA or Superfund), as amended by the
Superfund Amendments and Reauthorization Act of 1986. Under Superfund, the
Environmental Protection Agency (EPA) has identified approximately 35,000 sites
throughout the United States for review, ranking and possible inclusion on the
National Priorities List (NPL) for possible response. Among the sites
identified, EPA has included 13 sites owned by the Corporation. The Corporation
believes that most, if not all, of its sites so identified will not qualify for
listing on the NPL.
In addition, the Corporation may be required to remove hazardous waste
or remediate the alleged effects of hazardous substances on the environment
associated with past disposal practices at sites not owned by the Corporation.
The Corporation has received notice that it is a potentially responsible party
from EPA and/or individual states under CERCLA or a state equivalent and is
participating in environmental assessment and remediation activity at 37 sites.
For further information about these proceedings, see Item 3. Legal Proceedings,
Part III.
The 1990 Amendments to the federal Clean Air Act require EPA to develop
and implement many new requirements, and they allow states to establish new
programs to implement some of the new requirements, such as the requirements for
operating permits under Title V of the 1990 Amendments and hazardous air
pollutants under Title III of the 1990 Amendments. Because EPA has not yet
adopted or implemented all of the changes required by Congress, the air quality
laws will continue to expand and change in coming years as EPA develops new
requirements and then implements them or allows the states to implement them.
Nevertheless, most states have made or are in the process of making certain
required changes to their laws regarding Title V. In response to these new laws,
several of the Corporation's subsidiaries already have submitted or are in the
process of preparing applications for Title V operating permits. These programs
will likely increase the Corporation's regulatory obligations and compliance
costs. These costs could include implementation of maximum achievable control
technology for any of the Corporation's facilities that is determined to be a
major source of federal hazardous air pollutants. Until more of the implementing
regulations are adopted, and more experience with the new programs is gained, it
is not possible to determine the impact of the new requirements on the
Corporation.
At December 31, 1996, the Corporation had reserves of $117.0 million
for remediation of certain of the sites referred to above and other
environmental costs in accordance with its policy to record liabilities for
environmental expenditures when it is probable that obligations have been
incurred and the costs reasonably can be estimated. The Corporation's estimates
of these costs are based upon currently available facts, existing technology,
and presently enacted laws and regulations. Where the available information is
sufficient to estimate the amount of liability, that estimate has been used;
where the information is only sufficient to establish a range of probable
liability and no point within the range is more likely than any other, the lower
end of the range has been used.
The amounts of the Corporation's liabilities for remedial activities
are very difficult to estimate due to such factors as the unknown extent of the
remedial actions that may be required and, in the case of sites not owned by the
Corporation, the unknown extent of the Corporation's probable liability in
proportion to the probable liability of other parties. The Corporation has
probable environmental liabilities that in its judgment cannot reasonably be
estimated, and losses attributable to remediation costs are reasonably possible
at other sites. The Corporation cannot now estimate the total additional loss it
may incur for such environmental liabilities, but such loss could be
substantial.
The possibility of recovery of some of the environmental remediation
costs from insurance companies or other parties exists; however, the Corporation
does not recognize these recoveries in its financial statements until they
become probable.
The Corporation's operations are subject to myriad environmental laws
and regulations in jurisdictions both in the United States and in other
countries in which it does business. For further discussion of these laws and
regulations, please see "Environmental and Other Regulatory Matters" and
"Environmental Matters" in Part I, Items 1 and 2 of this report. The estimates
given in those discussions of the capital expenditures for programs to comply
with applicable environmental laws and regulations in 1997 and 1998, and the
expenditures for those programs in 1996, are separate from the reserves and
estimates described above.
On December 23, 1994, Chino Mines Company (CMC), which is two-thirds
owned by Phelps Dodge Corporation and is located near Silver City, New Mexico,
entered into an Administrative Order on Consent (AOC) with the New Mexico
Environment Department that will require CMC to study the environmental impacts
and potential health risks associated with portions of the CMC property affected
by historical mining operations. Phelps Dodge acquired CMC at the end of 1986.
Those studies began in 1995 and, until completed, it will not be possible to
determine the nature, extent, cost, and timing of remedial work which will be
required under the AOC, although remedial work is expected to be required.
In 1993 and 1994, the New Mexico and Arizona legislatures,
respectively, passed laws requiring the reclamation of mined lands in those
states. The New Mexico Mining Commission adopted rules for the New Mexico
program during 1994, and the Corporation's operations began submitting the
required permit applications in December 1994. The Arizona State Mine Inspector
adopted rules for the Arizona program in January 1997, and the Corporation's
operations are expected to begin submitting the required reclamation plans in
March 1997. These laws and regulations will likely increase the Corporation's
regulatory obligations and compliance costs with respect to mine closure and
reclamation. At this time, it is not possible to quantify the impact of the new
laws and regulations on the Corporation.
In 1995, legislation was introduced in both the U.S. House of
Representatives and the U.S. Senate to amend the Mining Law of 1872. None of the
bills was enacted into law. Also, mining law amendments were added to the 1996
budget reconciliation bill, which was vetoed by the President. Among other
things, the amendments contained in the 1996 bill would have imposed a 5 percent
net proceeds royalty on minerals extracted from federal lands, required payment
of fair market value for patenting federal lands, and required that patented
lands used for non-mining purposes revert to the federal government. Several of
these same concepts likely will be pursued legislatively in 1997. The Secretary
of the Interior also recently ordered the Bureau of Land Management (BLM) to
form a task force to review BLM's hardrock mining surface management regulations
and propose revisions to expand environmental and reclamation requirements,
among other things. While the effect of such changes on Phelps Dodge's current
operations and other currently owned mineral resources on private lands would be
minimal, passage of the amendments would result in additional expenses in the
development and operation of new mines on federal lands.
CAPITAL OUTLAYS
The Corporation's capital outlays in each of the past three years are set forth
in the following table. These capital outlays are exclusive of capitalized
interest and the portions of the expenditures at Morenci, Chino and Candelaria
payable by minority interest holders.
- --------------------------------------------------------------------------------
1996 1995 1994
---- ---- ----
(millions of dollars)
Phelps Dodge Mining Company:
Southside project (Morenci mine) $ 5.8 112.6 49.6
Azco acquisition - 40.2 -
Candelaria 89.5 15.1 137.9
Other 234.9 153.7 111.7
------- ------- -------
330.2 321.6 299.2
Phelps Dodge Industries 179.6 82.3 55.1
Corporate and other 3.2 1.0 0.7
------- ------- -------
$ 513.0 404.9 355.0
======= ======= =======
- --------------------------------------------------------------------------------
INFLATION
During the last three years, the principal impact of general inflation upon the
financial results of the Corporation has been on unit production costs,
especially supply costs, at the Corporation's mining and industrial operations.
In considering the impact of changing prices on the financial results of the
Corporation, it is important to recognize that the selling price of the
Corporation's principal product, copper, does not necessarily parallel the rate
of inflation or deflation.
<PAGE>
DIVIDENDS AND MARKET PRICE RANGES
Phelps Dodge's common shares are listed on the New York Stock Exchange, the
principal market on which they are traded. At March 6, 1997, there were 10,999
holders of record of the Corporation's common shares. The Corporation paid
quarterly dividends of 41.25 cents on each common share for the first three
quarters of 1994. In the 1994 fourth quarter, the quarterly dividend was
increased 9 percent to 45 cents on each common share and continued at that rate
until the 1996 second quarter when the quarterly dividend was increased by 11
percent to 50 cents on each common share.
The table below sets forth the high, low and closing prices per common
share (composite quotation) in the periods indicated.
- --------------------------------------------------------------------------------
Market Price Ranges *
High Low Close
---- ---- ----
1996:
First Quarter $ 69.88 56.25 69.00
Second Quarter 77.63 61.13 62.25
Third Quarter 64.88 54.63 64.13
Fourth Quarter 74.25 61.38 67.50
1995:
First Quarter $ 63.00 51.88 56.88
Second Quarter 60.25 52.50 59.00
Third Quarter 70.50 58.50 62.75
Fourth Quarter 69.50 59.75 62.25
1994:
First Quarter $ 59.50 47.63 52.25
Second Quarter 60.88 50.50 57.00
Third Quarter 65.00 55.88 62.00
Fourth Quarter 64.00 54.38 61.88
- ---------------
* The market price ranges reflect actual share prices as reported for each day's
trading.
- --------------------------------------------------------------------------------
<PAGE>
QUARTERLY FINANCIAL DATA
(In millions except per common share amounts)
- --------------------------------------------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
1996 (a)
Sales and other operating revenues $ 1,004.7 957.7 853.6 970.6
Operating income 229.8 195.5 126.7 160.9
Net income 153.1 126.3 80.2 102.2
Net income per common share 2.26 1.90 1.22 1.57
1995 (b)
Sales and other operating revenues $ 1,033.5 1,024.2 1,076.7 1,051.0
Operating income 271.3 239.1 311.4 278.7
Net income 185.3 159.5 211.8 190.0
Net income per common share 2.61 2.28 3.03 2.73
- ---------------
(a) Operating income in the 1996 fourth quarter included a $10.0
million pre-tax charge resulting from a reclamation provision
related to the Court ordered rescission of a 1986 sale of
property. The loss on this rescission, including related
interest, was $10.7 million after taxes, or 16 cents per
common share.
(b) Operating income in the 1995 first quarter included a $26.8
million pre-tax gain from the sale of Columbian Chemicals
Company's MAPICO division. MAPICO produced synthetic iron
oxides at a plant in St. Louis, Missouri, and was peripheral
to Columbian's core business. The gain on the sale of these
assets was $16.6 million after taxes, or 24 cents per common
share.
- --------------------------------------------------------------------------------
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
- ----------------------------------------------------
PHELPS DODGE CORPORATION AND CONSOLIDATED SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The consolidated balance sheet at December 31, 1996 and 1995, and the
related consolidated statements of income, of cash flows and of common
shareholders' equity for each of the three years in the period ended December
31, 1996, and notes thereto, together with the report thereon of Price
Waterhouse LLP dated January 15, 1997, follow. The additional financial data
referred to below should be read in conjunction with these financial statements.
Schedules not included with these additional financial data have been omitted
because they are not applicable or the required information is shown in the
financial statements or notes thereto. The individual financial statements of
the Corporation have been omitted because the Corporation is primarily an
operating company and all subsidiaries included in the consolidated financial
statements, in the aggregate, do not have minority equity interests and/or
indebtedness to any person other than the Corporation or its consolidated
subsidiaries in amounts which together exceed 5 percent of total consolidated
assets at December 31, 1996. Separate financial statements of subsidiaries not
consolidated and 50 percent or less owned persons accounted for by the equity
method, other than those for which summarized financial information is provided
in Note 3 to the Consolidated Financial Statements, have been omitted because,
if considered in the aggregate, such subsidiaries and 50 percent or less owned
affiliates would not constitute a significant subsidiary.
ADDITIONAL FINANCIAL DATA
Financial statement schedule for the years ended December 31, 1996, 1995 and
1994:
VIII - Valuation and qualifying accounts and reserves.
REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULE
To the Board of Directors of Phelps Dodge Corporation
Our audits of the consolidated financial statements referred to in our report
dated January 15, 1997 appearing in this Form 10-K also included an audit of the
Financial Statement Schedule listed in the foregoing index titled "Additional
Financial Data." In our opinion, this Financial Statement Schedule presents
fairly, in all material respects, the information set forth therein when read in
conjunction with the related consolidated financial statements.
PRICE WATERHOUSE LLP
Phoenix, Arizona
January 15, 1997
REPORT OF MANAGEMENT
The management of Phelps Dodge Corporation is responsible for preparing the
consolidated financial statements presented in this annual report and for their
integrity and objectivity. The statements have been prepared in accordance with
generally accepted accounting principles appropriate in the circumstances, and
include amounts that are based on management's best estimates and judgments.
Management also has prepared the other information in this annual report and is
responsible for its accuracy and consistency with the financial statements.
Management maintains a system of internal controls, including internal
accounting controls, which in management's opinion provides reasonable assurance
that assets are safeguarded and that transactions are properly recorded and
executed in accordance with management's authorization. The system includes
formal policies and procedures that are communicated to employees with
significant roles in the financial reporting process and updated as necessary.
The system also includes the careful selection and training of qualified
personnel, an organization that provides a segregation of responsibilities and a
program of internal audits that independently assesses the effectiveness of
internal controls and recommends possible improvements.
The Audit Committee, currently consisting of five non-employee
directors, meets at least three times a year to review, among other matters,
internal control conditions and internal and external audit plans and results.
It meets periodically with senior officers, internal auditors and independent
accountants to review the adequacy and reliability of the Corporation's
accounting, financial reporting and internal controls.
The consolidated financial statements have also been audited by Price
Waterhouse LLP, our independent accountants, whose appointment was ratified by
the shareholders. The Price Waterhouse LLP examination included a study and
evaluation of internal accounting controls to establish a basis for reliance
thereon in determining the nature, extent and timing of audit tests applied in
the examination of the financial statements.
Management also recognizes its responsibility for fostering a strong
ethical climate so that the Corporation's affairs are conducted according to the
highest standards of personal and corporate conduct. This responsibility is
characterized and reflected in the Corporation's code of business ethics and
policies, which is distributed throughout the Corporation. The code of conduct
addresses, among other things, the necessity of ensuring open communication
within the Corporation; potential conflicts of interest; compliance with all
applicable laws, including those relating to financial disclosure; and the
confidentiality of proprietary information. The Corporation maintains a
systematic program to assess compliance with these policies.
<PAGE>
<AUDIT-REPORT>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of Phelps Dodge Corporation
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of income, of cash flows and of common shareholders'
equity present fairly, in all material respects, the financial position of
Phelps Dodge Corporation and its subsidiaries at December 31, 1996 and 1995, and
the results of their operations and their cash flows for each of the three years
in the period ended December 31, 1996, in conformity with generally accepted
accounting principles. These financial statements are the responsibility of the
Corporation's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
Phoenix, Arizona
January 15, 1997
</AUDIT-REPORT>
<PAGE>
STATEMENT OF CONSOLIDATED INCOME
- --------------------------------
(In thousands except per share data)
1996 1995 1994
---- ---- ----
SALES AND OTHER OPERATING REVENUES $ 3,786,600 4,185,400 3,289,200
--------- --------- ---------
OPERATING COSTS AND EXPENSES
Cost of products sold 2,604,400 2,691,400 2,375,700
Depreciation, depletion and
amortization 249,500 223,500 195,300
Selling and general administrative
expense 125,900 123,600 107,100
Exploration and research expense 83,900 73,200 53,000
Provision for environmental costs,
reclamation costs, and (gains)
losses on asset dispositions 10,000 (26,800) 157,700
--------- --------- ---------
3,073,700 3,084,900 2,888,800
--------- --------- ---------
OPERATING INCOME 712,900 1,100,500 400,400
Interest expense (68,000) (65,100) (57,300)
Capitalized interest 1,900 3,100 20,700
Miscellaneous income and expense, net 40,700 37,200 11,300
--------- --------- ---------
INCOME BEFORE TAXES, MINORITY
INTERESTS AND EQUITY IN NET EARNINGS
OF AFFILIATED COMPANIES 687,500 1,075,700 375,100
Provision for taxes (220,000) (322,700) (104,700)
Minority interests in consolidated
subsidiaries (16,200) (12,900) (8,000)
Equity in net earnings of affiliated
companies 10,500 6,500 8,600
--------- --------- ---------
NET INCOME $ 461,800 746,600 271,000
========= ========= =========
EARNINGS PER SHARE $ 6.97 10.65 3.81
AVERAGE NUMBER OF SHARES OUTSTANDING 66,300 70,100 71,100
See Notes to Consolidated Financial Statements.
<PAGE>
CONSOLIDATED BALANCE SHEET
- --------------------------
(In thousands except per share values)
December December
31, 31,
1996 1995
---- ----
ASSETS
Current assets:
Cash and short-term investments, at cost $ 470,100 608,500
Accounts receivable, less allowance for
doubtful accounts (1996 - $14,200;
1995 - $12,000) 489,100 483,700
Inventories 293,000 281,500
Supplies 117,000 121,400
Prepaid expenses 6,100 15,500
Deferred income taxes 46,200 44,600
--------- ---------
Current assets 1,421,500 1,555,200
Investments and long-term accounts receivable 86,400 79,000
Property, plant and equipment, net 3,020,500 2,728,700
Other assets and deferred charges 288,000 283,000
--------- ---------
$ 4,816,400 4,645,900
========= =========
LIABILITIES
Current liabilities:
Short-term debt $ 66,500 66,600
Current portion of long-term debt 38,200 16,800
Accounts payable and accrued expenses 564,900 504,800
Income taxes 16,300 16,800
--------- ---------
Current liabilities 685,900 605,000
Long-term debt 554,600 613,100
Deferred income taxes 424,900 358,100
Other liabilities and deferred credits 309,600 318,700
--------- ---------
1,975,000 1,894,900
--------- ---------
COMMITMENTS AND CONTINGENCIES
(SEE NOTES 17 AND 18)
MINORITY INTERESTS IN CONSOLIDATED SUBSIDIARIES 85,500 73,300
--------- ---------
COMMON SHAREHOLDERS' EQUITY
Common shares, par value $6.25; 100,000
shares authorized; 64,711 outstanding
(1995 - 68,593) after deducting 10,478 shares
(1995 - 6,595) held in treasury 404,400 428,700
Retained earnings 2,465,000 2,360,100
Cumulative translation adjustments (98,800) (93,900)
Other (14,700) (17,200)
--------- ---------
2,755,900 2,677,700
--------- ---------
$ 4,816,400 4,645,900
========= =========
See Notes to Consolidated Financial Statements.
<PAGE>
CONSOLIDATED STATEMENT OF CASH FLOWS
- ------------------------------------
(In thousands)
1996 1995 1994
---- ---- ----
OPERATING ACTIVITIES
Net income $ 461,800 746,600 271,000
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation, depletion and
amortization 249,500 223,500 195,300
Deferred income taxes 61,900 107,600 (28,300)
Equity earnings net of dividends
received (3,800) (400) (4,400)
Provision for environmental costs
and asset dispositions - - 140,200
Changes in current assets and
liabilities:
(Increase) decrease in accounts
receivable (6,200) (2,300) (138,600)
(Increase) decrease in inventories 3,600 (15,800) (35,400)
(Increase) decrease in supplies 3,800 (11,900) 1,600
(Increase) decrease in prepaid
expenses 10,700 100 (3,400)
(Increase) decrease in deferred
income taxes (1,800) (6,000) (3,200)
Increase (decrease) in interest
payable 5,900 (100) 500
Increase (decrease) in other
accounts payable 38,300 (55,500) 88,200
Increase (decrease) in income
taxes (300) (29,500) 32,200
Increase (decrease) in other
accrued expenses 10,000 36,800 22,100
(Gains) losses on asset dispositions - (26,800) 17,500
Other adjustments, net 4,100 (7,300) (12,700)
--------- --------- ---------
Net cash provided by operating
activities 837,500 959,000 542,600
--------- --------- ---------
INVESTING ACTIVITIES
Capital outlays (513,000) (404,900) (355,000)
Capitalized interest (1,900) (3,100) (20,700)
Investment in subsidiaries (47,400) (300) (77,300)
Proceeds from asset sales 5,000 40,900 19,300
Other - - 7,200
--------- --------- ---------
Net cash used in investing
activities (557,300) (367,400) (426,500)
--------- --------- ---------
FINANCING ACTIVITIES
Increase in debt 16,100 30,800 185,600
Payment of debt (54,100) (22,800) (137,100)
Common dividends (128,600) (125,600) (119,200)
Purchase of common shares (273,200) (162,700) (3,900)
Debt issue costs - - (7,500)
Other 21,200 10,300 (2,900)
--------- --------- ---------
Net cash used in financing
activities (418,600) (270,000) (85,000)
--------- --------- ---------
INCREASE (DECREASE) IN CASH AND
SHORT-TERM INVESTMENTS (138,400) 321,600 31,100
CASH AND SHORT-TERM INVESTMENTS AT
BEGINNING OF YEAR 608,500 286,900 255,800
--------- --------- ---------
CASH AND SHORT-TERM INVESTMENTS AT END
OF YEAR $ 470,100 608,500 286,900
========= ========= =========
See Notes to Consolidated Financial Statements.
<PAGE>
CONSOLIDATED STATEMENT OF COMMON SHAREHOLDERS' EQUITY
(In thousands)
<TABLE>
<CAPTION>
Common Shares Cumulative
------------- Capital in Translation Common
Number At Par Excess of Retained Adjustments Shareholders'
of Shares Value Par Value Earnings and Other Equity
--------- ----- --------- -------- --------- ------
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1993 70,531 $440,800 $83,100 $1,618,500 ($120,300) $2,022,100
Stock options exercised 216 1,400 700 2,100
Tax benefit from stock options 3,900 3,900
Common shares purchased (76) (500) (3,400) (3,900)
Restricted shares issued, net 14 100 700 700 1,500
Restricted shares terminated (13) (100) (500) 600 -
Net income 271,000 271,000
Dividends on common shares (119,200) (119,200)
Translation adjustment 7,400 7,400
Additional pension liability 3,000 3,000
Other (300) (300)
------ -------- --------- ----------- ---------- -----------
BALANCE AT DECEMBER 31, 1994 70,672 441,700 84,500 1,770,300 (108,900) 2,187,600
Stock options exercised 455 2,800 10,000 12,800
Tax benefit from stock options 6,100 6,100
Common shares purchased (2,761) (17,300) (114,200) (31,200) (162,700)
Restricted shares issued, net 186 1,200 11,200 (10,800) 1,600
Employee stock bonus award 41 300 2,400 2,700
Net income 746,600 746,600
Dividends on common shares (125,600) (125,600)
Translation adjustment (100) (100)
Additional pension liability 8,000 8,000
Other 700 700
------ -------- --------- ----------- ---------- -----------
BALANCE AT DECEMBER 31, 1995 68,593 428,700 - 2,360,100 (111,100) 2,677,700
Stock options exercised 408 2,600 12,000 14,600
Tax benefit from stock options 5,500 5,500
Common shares purchased (4,297) (26,900) (246,300) (273,200)
Restricted shares issued, net 7 - 500 1,200 1,700
Net income 461,800 461,800
Dividends on common shares (128,600) (128,600)
Translation adjustment (4,900) (4,900)
Additional pension liability 1,000 1,000
Other 300 300
------ -------- --------- ----------- ---------- -----------
BALANCE AT DECEMBER 31, 1996 64,711 $404,400 $ - $2,465,000 ($113,500) $2,755,900
====== ======== ========= =========== ========== ===========
See Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------
(Dollar amounts in tables stated in thousands except as noted)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Consolidation. The consolidated financial statements include the
accounts of the Corporation and its majority-owned subsidiaries. Interests in
mining joint ventures in which the Corporation owns more than 50 percent are
reported using the proportional consolidation method. Interests in other
majority-owned subsidiaries are reported using the full consolidation method;
the consolidated financial statements include 100 percent of the assets and
liabilities of these subsidiaries and the ownership interests of minority
participants are recorded as "Minority interests in consolidated subsidiaries."
All material intercompany balances and transactions are eliminated.
Investments in unconsolidated companies owned 20 percent or more are
recorded on an equity basis. Investments in companies less than 20 percent owned
are carried at cost.
Management's Estimates and Assumptions. The preparation of financial statements
in conformity with generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Foreign Currency Translation. Except as noted below, the assets and liabilities
of foreign subsidiaries are translated at current exchange rates while revenues
and expenses are translated at average rates in effect for the period. The
related translation gains and losses are included in a separate component of
common shareholders' equity. For the translation of the financial statements of
certain foreign subsidiaries dealing predominantly in U.S. dollars and for those
affiliates operating in highly inflationary economies, assets and liabilities
receivable or payable in cash are translated at current exchange rates, and
inventories and other non-monetary assets and liabilities are translated at
historical rates. Gains and losses resulting from translation of such financial
statements are included in operating results, as are gains and losses incurred
on foreign currency transactions.
Statement of Cash Flows. For the purpose of preparing the Consolidated Statement
of Cash Flows, the Corporation considers all highly liquid investments with a
maturity of three months or less when purchased to be cash equivalents.
Inventories and Supplies. Inventories and supplies are stated at the lower of
cost or market. Cost for substantially all inventories is determined by the
last-in, first-out method (LIFO). Cost for substantially all supplies is
determined by a moving-average method.
Property, Plant and Equipment. Property, plant and equipment are carried at
cost. Cost of significant assets includes capitalized interest incurred during
the construction and development period. Expenditures for replacements and
betterments are capitalized; maintenance and repair expenditures are charged to
operations as incurred.
The principal depreciation method used for mining, smelting and
refining operations is the units of production method applied on a group basis.
Buildings, machinery and equipment for other operations are depreciated using
the straight-line method over estimated lives of five to 40 years, or the
estimated life of the operation if shorter. Upon disposal of assets depreciated
on a group basis, cost less salvage is charged to accumulated depreciation.
Values for mining properties represent mainly acquisition costs or
pre-1932 engineering valuations. Depletion of mines is computed on the basis of
an overall unit rate applied to the pounds of principal products sold from mine
production.
Mine exploration costs and development costs to maintain production of
operating mines are charged to operations as incurred. Mine development
expenditures at new mines and major development expenditures at operating mines
that are expected to benefit future production are capitalized and amortized on
the units of production method over the estimated commercially recoverable
minerals.
Environmental Expenditures. Environmental expenditures are expensed or
capitalized depending upon their future economic benefits. Liabilities for such
expenditures are recorded when it is probable that obligations have been
incurred and the costs reasonably can be estimated. The Corporation's estimates
of these costs are based upon currently available facts, existing technology,
and presently enacted laws and regulations. Where the available information is
sufficient to estimate the amount of liability, that estimate has been used;
where the information is only sufficient to establish a range of probable
liability and no point within the range is more likely than any other, the lower
end of the range has been used. The possibility of recovery of some of these
costs from insurance companies or other parties exists; however, the Corporation
does not recognize these recoveries in its financial statements until they
become probable.
Goodwill. Included in "Other assets and deferred charges" are costs in excess of
the net assets of businesses acquired. These amounts are amortized on a
straight-line basis over periods of 15 to 40 years. The Corporation evaluates
for impairment its long-term assets to be held and used and its identifiable
intangible assets when events or changes in economic circumstances indicate the
carrying amount of such assets may not be recoverable. Long-term assets to be
disposed of are carried at the lower of cost or fair value less the costs of
disposal.
Hedging Programs. The Corporation does not acquire, hold or issue derivative
financial instruments for trading purposes. Derivative financial instruments are
used to manage well-defined commodity price and foreign exchange risks.
Depending on market circumstances, the Corporation may periodically
purchase or sell various copper option contracts to mitigate the risk of adverse
price fluctuations on a portion of its copper production. Any net premiums paid
on purchased option contracts that guarantee a minimum price over a specified
period are initially recorded as prepaid assets and then amortized on a
straight-line basis over the hedge protection period. Gains and losses from
option contracts that effectively establish price ranges for future production
are recognized in income at the maturity of the option contract. Any premiums
received on the sale of option contracts are recorded as accrued expenses until
the maturity of the option contract when the premium received is recorded as
income.
The Corporation's objective and practice is to sell its copper at a
price based on the New York Commodity Exchange (COMEX) average price in the
month of shipment. However, a few customers request a firm price as of a
specified date prior to or during the month of shipment. In such transactions,
the Corporation usually hedges such sales commitments by entering into copper
futures and copper swap contracts that approximate the shipment quantities and
periods. The copper futures contracts are then liquidated during the month of
shipment which generally results in the realization of the COMEX average monthly
price for copper shipped. Swap contracts are settled at the COMEX average
monthly price in the month copper is shipped. Gains and losses on copper futures
and copper swap contracts are recognized in income when the underlying exposure
is recognized or when a previous firm commitment is no longer expected to occur.
The Corporation periodically enters into forward exchange and currency
option contracts to hedge certain recorded transactions, firm commitments and
other anticipated transactions denominated in foreign currencies. The objective
of the Corporation's foreign currency hedging program is to protect the
Corporation from the risk that the eventual equivalent dollar cash flows
resulting from transactions denominated in foreign currencies will be adversely
affected by changes in exchange rates. The carrying value of premiums paid on
currency option contracts and unrecognized gains and losses on forward exchange
contracts are recorded as prepaid assets, while recognized gains and losses are
recorded as miscellaneous income or expense items. Gains and losses on option
contracts that qualify as hedges are recognized in income when the underlying
hedged transaction is recognized or when a previously anticipated transaction is
no longer expected to occur. Changes in market value of forward exchange
contracts and certain option contracts protecting anticipated transactions are
recognized in the period incurred.
The Corporation may enter into interest rate hedging agreements to
limit the effect of increases in the interest rates on floating rate debt. The
costs associated with such agreements are amortized to interest expense over the
term of the agreement.
Stock Compensation. The Corporation elected early adoption of Statement of
Financial Accounting Standards (SFAS) No. 123, "Accounting for Stock-Based
Compensation" in 1995. In accordance with the provisions of SFAS No. 123, the
Corporation applies APB Opinion 25 and related Interpretations in accounting for
its stock option plans and, accordingly, does not recognize compensation cost.
Note 14 to the Consolidated Financial Statements contains a summary of the pro
forma effects to reported net income and earnings per share for 1996, 1995 and
1994 if the Corporation had elected to recognize compensation cost based on the
fair value of the options granted at grant date as prescribed by SFAS No. 123.
Income Taxes. In addition to charging income for taxes actually paid or payable,
the provision for taxes reflects deferred income taxes resulting from changes in
temporary differences between the tax bases of assets and liabilities and their
reported amounts in the financial statements. The effect on deferred income
taxes of a change in tax rates is recognized in income in the period that
includes the enactment date.
Pension Plans. The Corporation has trusteed, non-contributory pension plans
covering substantially all of its U.S. employees and in some cases employees of
international subsidiaries. The benefits are based on, in the case of certain
plans, final average salary and years of service and, in the case of other
plans, a fixed amount for each year of service. The Corporation's funding policy
provides that payments to the pension trusts shall be at least equal to the
minimum funding requirements of the Employee Retirement Income Security Act of
1974 for U.S. plans or, in the case of international subsidiaries, the minimum
legal requirements in that particular country. Additional payments may also be
provided by the Corporation from time to time.
Postretirement Benefits Other Than Pensions. The Corporation has several
postretirement health care and life insurance benefit plans covering most of its
U.S. employees and in some cases employees of international subsidiaries.
Postretirement benefits vary among plans and many plans require contributions
from employees. The Corporation accounts for these benefits on an accrual basis.
The Corporation's funding policy provides that payments shall be at least equal
to its cash basis obligation, plus additional amounts that may be approved by
the Corporation from time to time.
Postemployment Benefits. The Corporation has certain postemployment benefit
plans covering most of its U.S. employees and in some cases employees of
international subsidiaries. The benefit plans may provide severance, disability,
supplemental health care, life insurance or other welfare benefits. The
Corporation accounts for these benefits on an accrual basis. The Corporation's
funding policy provides that payments shall be at least equal to its cash basis
obligation, plus additional amounts that may be approved by the Corporation from
time to time.
Earnings per Share. Earnings per share amounts are computed based on the
weighted average number of shares actually outstanding during the period plus
the shares that would be outstanding assuming the exercise of dilutive stock
options, which are considered to be common stock equivalents. The number of
equivalent shares that would be issued from the exercise of stock options is
computed using the treasury stock method. Note 14 to the Consolidated Financial
Statements contains a summary of the pro forma effects to reported earnings per
share for 1996, 1995 and 1994 if the Corporation had elected to recognize
compensation cost in accordance with SFAS No. 123, "Accounting for Stock-Based
Compensation."
Reclassification. For comparative purposes, certain prior year amounts have been
reclassified to conform with the current year presentation.
2. PROVISION FOR ENVIRONMENTAL COSTS AND ASSET DISPOSITIONS
In December 1996, the United States District Court of the Eastern District of
New York ruled that the 1986 sale of property in Maspeth, New York, by the
Corporation to the United States Postal Service is to be rescinded. The Court
ordered the Corporation to return the $14.8 million originally paid by the
Postal Service for the property and to pay interest on the sales price for a
portion of the time since that sale. The Corporation has not yet determined
whether to appeal the Court's decision, but as a precaution, the Corporation
recorded interest charges of $5.9 million and reclamation reserves of $10.0
million in the 1996 fourth quarter. This reclamation provision was estimated
based on the Corporation's experience at other Corporate-owned properties.
During the 1995 first quarter, the Corporation recognized a $26.8
million gain before taxes from the sale of Columbian Chemicals Company's
synthetic iron oxide facility in St. Louis, Missouri (MAPICO). This gain
increased net income by $16.6 million, or 24 cents per common share, after
taxes. MAPICO was peripheral to Columbian's core business.
In the 1994 fourth quarter, the Corporation recorded non-recurring
pre-tax charges of $140.2 million reflecting additional provisions of $98.7
million before taxes for estimated future costs associated with environmental
matters primarily in Phelps Dodge Mining Company and $41.5 million before taxes
for estimated losses, primarily in Phelps Dodge Industries, on the disposition
of certain operating facilities. These charges reduced net income by $91.7
million, or $1.29 per common share, after taxes.
The pre-tax charge of $98.7 million for estimated future costs
associated with environmental matters comprised $88.9 million applicable to
Phelps Dodge Mining Company, $8.6 million applicable to Phelps Dodge Industries
and $1.2 million applicable to Corporate and other. As a result of these 1994
environmental charges and balances remaining from previously provided charges
for environmental costs, the Corporation's reserves for such costs totaled
$117.0 million and $144.1 million at December 31, 1996, and December 31, 1995,
respectively (see Note 1 to the Consolidated Financial Statements for further
information concerning the Corporation's policy for recording environmental
obligations).
The pre-tax charge of $41.5 million associated with the disposition of
certain operating facilities included $36.0 million for Phelps Dodge Industries
and $5.5 million for Phelps Dodge Mining Company issues. The portion of the
charge attributable to Phelps Dodge Industries comprised a provision of $20.0
million for the impairment of value of Hudson International Conductors, a loss
of $7.0 million on the sale of the Corporation's 40 percent interest in its
Mexican associate company, CONELEC S.A. de C.V., and a provision of $9.0 million
for the closure of Columbian Chemicals Company's plant in Hamburg, Germany.
Also included in the provision for environmental costs and asset
dispositions for the full year 1994 was a second quarter provision for the sale
of Phelps Dodge Mining Company's interest in its Santa Gertrudis gold property
in Mexico and its Olinghouse gold property in Nevada. The combined net loss on
the sale of these interests was $17.5 million before taxes. This charge reduced
net income by $11.2 million, or 16 cents per common share, after taxes.
3. EQUITY EARNINGS AND INVESTMENTS AND LONG-TERM RECEIVABLES
Equity earnings (losses) were as follows:
- --------------------------------------------------------------------------------
1996 1995 1994
---- ---- ----
International wire and cable manufacturers $ 2,600 1,000 1,700
Black Mountain 6,600 4,500 6,000
Santa Gertrudis - - (600)
Other 1,300 1,000 1,500
------- ------- -------
$ 10,500 6,500 8,600
======= ======= =======
- -------------------------------------------------------------------------------
Dividends were received as follows:
- -------------------------------------------------------------------------------
1996 1995 1994
---- ---- ----
Equity investments:
International wire and cable
manufacturers $ 300 300 1,400
Black Mountain 6,000 5,700 2,900
Other 500 100 -
------- ------- -------
$ 6,800 6,100 4,300
======= ======= =======
Cost basis investments:
Southern Peru Copper Corporation $ 16,400 13,600 3,500
Other 300 300 400
------- ------- -------
$ 16,700 13,900 3,900
======= ======= =======
- -------------------------------------------------------------------------------
Investments and long-term receivables were as follows:
- -------------------------------------------------------------------------------
1996 1995 1994
---- ---- ----
Equity basis:
International wire and cable
manufacturers $ 20,300 18,200 18,500
Black Mountain 9,100 11,300 12,800
Other 16,000 12,200 11,100
Cost basis:
Southern Peru Copper Corporation 13,200 13,200 13,200
Other 27,800 24,100 26,400
------- ------- -------
$ 86,400 79,000 82,000
======= ======= =======
- -------------------------------------------------------------------------------
Retained earnings of the Corporation include undistributed earnings of
equity investments of (in millions): 1996 - $62.8; 1995 - $59.0; 1994 - $58.6.
Condensed financial information for companies in which the Corporation
has equity basis investments together with majority-owned foreign subsidiaries
previously accounted for on an equity basis is as follows:
- -------------------------------------------------------------------------------
1996 1995 1994
---- ---- ----
Sales $ 764,100 771,200 637,200
Net income 56,000 42,000 46,000
- -------------------------------------------------------------------------------
Net current assets $ 85,600 66,600 63,300
Fixed assets, net 290,800 259,100 249,500
Long-term debt (54,500) (40,500) (39,000)
Other assets and liabilities, net (8,000) (3,900) (2,500)
-------- -------- --------
Net assets $ 313,900 281,300 271,300
======== ======== ========
- -------------------------------------------------------------------------------
4. INTEREST EXPENSE, NET OF AMOUNT CAPITALIZED
The Corporation reported net interest expense in 1996 of $66.1 million, compared
with $62.0 million in 1995 and $36.6 million in 1994. Reported net interest
expense increased in 1996 despite a $37.2 million decrease in debt primarily due
to a $5.9 million interest charge resulting from the 1996 Court ordered
rescission of a 1986 sale of property. Increased 1995 net interest expense
principally resulted from the cessation of capitalization of interest costs for
the Candelaria project in Chile reflecting the substantial completion of
construction and development in the 1994 fourth quarter. Included in the 1996
and 1995 interest expense were foreign currency exchange gains of $8.0 million
and $8.1 million, respectively, reflecting the remeasurement of Venezuelan local
currency debt after major devaluations of the Bolivar.
5. MISCELLANEOUS INCOME AND EXPENSE, NET
Interest income totaled $34.3 million in 1996, principally from the
Corporation's short-term investments, compared with $31.5 million and $11.0
million in 1995 and 1994, respectively. Miscellaneous income in 1996 also
included pre-tax dividends of $16.4 million on its 13.9 percent minority
interest in Southern Peru Copper Corporation, compared with $13.6 million and
$3.5 million in 1995 and 1994, respectively. Losses from changes in currency
exchange rates, especially in Venezuela and Chile, amounted to $11.7 million in
1996, compared with losses of $10.2 million and $6.3 million in 1995 and 1994,
respectively.
6. INCOME TAXES
The Corporation reports its income taxes using an asset and liability approach
for financial accounting and reporting of income taxes. Changes in tax rates and
laws are reflected in income from operations in the period such changes are
enacted. In addition, balance sheet classification of deferred income taxes is
determined by the balance sheet classification of the asset or liability to
which the temporary difference is related.
Geographic sources of income before taxes, minority interests and
equity in net earnings of affiliated companies for the years ended December 31
were as follows:
- --------------------------------------------------------------------------------
1996 1995 1994
---- ---- ----
United States $ 536,100 816,200 298,900
Foreign 151,400 259,500 76,200
--------- --------- ---------
$ 687,500 1,075,700 375,100
========= ========= =========
- --------------------------------------------------------------------------------
The provisions for income taxes for the years ended December 31 were as
follows:
- --------------------------------------------------------------------------------
1996 1995 1994
---- ---- ----
Currently payable:
Federal $ 99,000 157,800 94,000
State 16,100 23,900 14,000
Foreign 43,000 38,100 25,000
-------- -------- --------
158,100 219,800 133,000
-------- -------- --------
Deferred:
Federal 45,200 78,400 (27,100)
State 6,400 400 (2,500)
Foreign 10,300 24,100 1,300
-------- -------- --------
61,900 102,900 (28,300)
-------- -------- --------
$ 220,000 322,700 104,700
======== ======== ========
- --------------------------------------------------------------------------------
A reconciliation of the U.S. statutory tax rate to the Corporation's
effective tax rate is as follows:
- --------------------------------------------------------------------------------
1996 1995 1994
---- ---- ----
Statutory tax rate 35.0 % 35.0 35.0
Depletion (7.0) (5.3) (10.6)
State and local income taxes 2.1 1.5 2.0
Effective international tax rate 0.9 (1.9) (0.5)
Other items, net 1.0 0.7 2.0
----- ----- -----
Effective tax rate 32.0 % 30.0 27.9
===== ===== =====
- --------------------------------------------------------------------------------
The Corporation paid federal, state, local and foreign income taxes of
approximately $160 million in 1996, compared with approximately $247 million in
1995 and approximately $114 million in 1994. As of December 31, 1996, the
Corporation had alternative minimum tax credits of approximately $78 million
available for carryforward for federal income tax purposes. These credits can be
carried forward indefinitely, but may only be used to the extent the regular tax
exceeds the alternative minimum tax. The Corporation also has alternative
minimum foreign tax credit carryforwards for federal income tax purposes of
approximately $27 million, which begin to expire in 1997.
The Corporation's federal income tax returns for the years 1992, 1993
and 1994 are currently under examination. The Corporation has received
substantial proposed adjustments from the Internal Revenue Service relating to
the Corporation's federal income tax liability for the years 1990 and 1991 and
has filed a protest with the appropriate authorities. These years are currently
under consideration by the appeals division of the Internal Revenue Service.
Management believes that it has made adequate provision so that final resolution
of the issues involved, including application of those determinations to
subsequent open years, will not have a material adverse effect on the
consolidated financial condition or results of operations of the Corporation.
However, settlement of these issues could involve material tax and interest
payments with respect to the open years, a substantial part of which would
involve timing differences. The Corporation does not agree with these proposed
adjustments and expects either to substantially settle them with the Internal
Revenue Service or litigate the issues involved.
Deferred income tax assets and (liabilities) comprised the following at
December 31:
- --------------------------------------------------------------------------------
1996 1995
---- ----
Minimum tax credits $ 78,400 86,700
Postretirement and postemployment benefits 58,000 52,500
Reserves 69,700 89,600
Mining costs 45,000 33,100
Inventories 4,800 1,400
Other 4,400 6,400
--------- ---------
Deferred tax assets 260,300 269,700
--------- ---------
Depreciation (596,100) (540,600)
Mining properties (8,900) (9,300)
Exploration and mine development costs (3,700) (8,300)
Pensions (30,300) (25,000)
--------- ---------
Deferred tax liabilities (639,000) (583,200)
--------- ---------
$ (378,700) (313,500)
========= =========
- --------------------------------------------------------------------------------
Income taxes have not been provided on the Corporation's share ($452
million) of undistributed earnings of those manufacturing and mining interests
abroad over which the Corporation has sufficient influence to control the
distribution of such earnings and has determined that such earnings have been
reinvested indefinitely. These earnings could become subject to additional tax
if they were remitted as dividends, if foreign earnings were loaned to the
Corporation or a U.S. affiliate, or if the Corporation should sell its stock in
the subsidiaries. It is estimated that repatriation of these foreign earnings
would generate additional foreign tax withholding and U.S. tax, net of foreign
tax credit, in the amounts of $70 million and $40 million, respectively.
7. INVENTORIES AND SUPPLIES
Inventories at December 31 were as follows (in millions):
- --------------------------------------------------------------------------------
1996 1995
---- ----
Metals and other raw materials $ 194.1 200.4
Work in process 19.2 14.6
Finished manufactured goods 75.2 61.4
Other 4.5 5.1
------- -------
$ 293.0 281.5
======= =======
- --------------------------------------------------------------------------------
Inventories valued by the last-in, first-out method would have been
greater if valued at current costs by approximately $117 million and $115
million at December 31, 1996 and 1995, respectively.
Supplies in the amount of $117.0 million and $121.4 million at December
31, 1996 and 1995, respectively, are stated net of a reserve for obsolescence of
$8.9 million and $10.5 million, respectively.
8. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment at December 31 comprised the following (in
millions):
- --------------------------------------------------------------------------------
1996 1995
---- ----
Buildings, machinery and equipment $ 4,669.7 4,296.2
Mining properties 173.1 173.2
Capitalized mine development 290.4 284.8
Land and water rights 72.7 66.6
------- -------
5,205.9 4,820.8
Less accumulated depreciation, depletion
and amortization 2,185.4 2,092.1
------- -------
$ 3,020.5 2,728.7
======= =======
- --------------------------------------------------------------------------------
The net increases in property, plant and equipment of $291.8 million in
1996 and $162.3 million in 1995 are summarized below (in millions):
- --------------------------------------------------------------------------------
1996 1995
---- ----
Balance at beginning of year $ 2,728.7 2,566.4
------- -------
Capital expenditures 513.0 404.9
Depreciation, depletion and amortization (243.7) (218.7)
Property, plant and equipment of acquired
companies 37.2 -
Asset sales, currency translation adjustments
and other (14.7) (23.9)
------- -------
291.8 162.3
------- -------
Balance at end of year $ 3,020.5 2,728.7
======= =======
- --------------------------------------------------------------------------------
9. OTHER ASSETS AND DEFERRED CHARGES
Other assets and deferred charges at December 31 were as follows (in millions):
- --------------------------------------------------------------------------------
1996 1995
---- ----
Goodwill, less accumulated amortization
(1996 - $39.4; 1995 - $34.5) $ 130.6 120.8
Employee benefit plans 105.2 108.8
Debt issue costs 25.6 29.2
Intangible pension asset 20.5 18.0
Other intangible assets 4.0 4.0
Other 2.1 2.2
------- -------
$ 288.0 283.0
======= =======
- --------------------------------------------------------------------------------
10. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses at December 31 were as follows (in
millions):
- --------------------------------------------------------------------------------
1996 1995
---- ----
Accounts payable $ 292.1 247.5
Employee benefit plans 31.5 55.8
Insurance and loss reserves 11.8 12.3
Salaries, wages and other compensation 48.3 36.5
Environmental reserves 43.6 51.1
Smelting, refining and freight 20.9 25.9
Other accrued taxes 16.1 17.6
Candelaria expansion 15.3 -
Shutdown, relocation and restructuring 10.3 7.1
Interest * 17.5 13.6
Returnable containers 3.6 3.3
Other 53.9 34.1
------- -------
$ 564.9 504.8
======= =======
- ---------------
* Interest paid by the Corporation in 1996 was $67.2 million, compared
with $70.4 million in 1995 and $58.5 million in 1994.
- --------------------------------------------------------------------------------
11. OTHER LIABILITIES AND DEFERRED CREDITS
Other liabilities and deferred credits at December 31 were as follows (in
millions):
- --------------------------------------------------------------------------------
1996 1995
---- ----
Postretirement and postemployment benefit plans $ 157.5 148.8
Other employee benefit plans 41.5 39.9
Environmental reserves 71.8 92.1
Shutdown, relocation and restructuring 5.4 11.2
Insurance and loss reserves 22.5 20.7
Other 10.9 6.0
------- -------
$ 309.6 318.7
======= =======
- --------------------------------------------------------------------------------
12. LONG-TERM DEBT AND OTHER FINANCING
Long-term debt at December 31 is summarized below (in millions):
- --------------------------------------------------------------------------------
1996 1995
---- ----
7.75% Notes due 2002 $ 100.0 100.0
7.96% Notes due 1998-2000 50.0 50.0
Air Quality Control Obligations:
5.45% Notes due 2009 81.1 81.1
6.50% Installment sale obligations due 2013 90.0 90.0
Candelaria 208.0 237.4
Ojos del Salado 6.0 8.0
Columbian Tiszai Carbon Ltd. 25.0 30.0
Columbian Carbon Spain, S.A. 10.9 14.1
Phelps Dodge International Corporation 17.8 13.3
Other 4.0 6.0
------- -------
Long-term debt including current portion 592.8 629.9
Less current portion 38.2 16.8
------- -------
Long-term debt excluding current portion $ 554.6 613.1
======= =======
- --------------------------------------------------------------------------------
Annual maturities of debt outstanding at December 31, 1996, are as follows (in
millions): 1997 - $38.2; 1998 - $49.5; 1999 - $56.9; 2000 - $48.1; 2001 - $30.3.
An existing revolving credit agreement between the Corporation and
several lenders was amended on June 4, 1996. The agreement, as amended and
restated, permits borrowings of up to $500 million from time to time until its
scheduled maturity on June 4, 2001. The agreement allows for two one-year
renewals beyond the scheduled maturity date if the Corporation requests and
receives approval from at least two-thirds of the lenders involved. Interest is
payable at a fluctuating rate based on the agent bank's prime rate or a fixed
rate, based on the Eurodollar Interbank Offered Rate or at fixed rates offered
independently by the several lenders, for maturities of from seven to 360 days.
This agreement provides for a facility fee of eight basis points (0.08 percent)
on total commitments. The agreement requires the Corporation to maintain a
minimum consolidated tangible net worth of $1.1 billion and limits indebtedness
to 50 percent of total consolidated capitalization. There were no borrowings
under this agreement at either December 31, 1996, or December 31, 1995.
Accuride Canada Inc. has a revolving credit facility that permits
borrowings of up to U.S. $25.0 million. Interest on these borrowings is payable
at a fluctuating rate based on the agent bank's Base Rate Canada, or a fixed
rate based on the London Interbank Offered Rate (LIBOR), for maturities of one
week to six months. This facility, which is subject to renewal annually,
provides for a standby fee of one-eighth of 1 percent of the $25.0 million.
There were no borrowings outstanding under this facility at either December 31,
1996, or December 31, 1995.
The Corporation had other lines of credit totaling $100.0 million at
December 31, 1996, and at December 31, 1995. These facilities are subject to
agreement as to availability, terms and amount. There were no borrowings
outstanding under these lines of credit at either December 31, 1996, or December
31, 1995.
The Corporation had $66.5 million in short-term borrowings, all by its
international operations, at December 31, 1996, compared with $66.6 million at
December 31, 1995. The weighted average interest rate on this debt at December
31, 1996, and December 31, 1995, was 15.3 percent and 18.5 percent,
respectively.
The Corporation's 80-percent-owned Compania Contractual Minera
Candelaria (CCMC) subsidiary borrowed $290 million under its project financing
agreements to finance construction of the Candelaria copper project in Chile.
Under the proportional consolidation method, the Corporation reflects 80 percent
of this amount in its financial statements. These borrowings became non-recourse
to the Corporation subsequent to the satisfaction of certain completion tests
during the second quarter of 1995. This $290 million of 13-year financing
comprises $200 million of floating rate dollar-denominated debt (with a rate
based on the six-month LIBOR) and $60 million of fixed rate dollar-denominated
debt, with a nine and one-half year repayment period that starts in 1997. The
remaining $30 million of 13-year financing, representing floating rate debt
denominated in Chilean pesos, was prepaid in December 1996 at a cost of $37.6
million including exchange losses and prepayment penalties. The Corporation also
caused CCMC to enter into an interest rate protection agreement with certain
financial institutions to limit the effect of increases in the cost of the $200
million of floating rate dollar-denominated debt. Under the terms of the
agreement, the project will receive payments from these institutions if the
six-month LIBOR exceeds 9 percent prior to December 31, 2001, and 11 percent
during the two subsequent years ending December 31, 2003.
The Corporation's 60-percent-owned Hungarian subsidiary, Columbian
Tiszai Carbon Ltd., borrowed $33.5 million under facilities from the Overseas
Private Investment Corporation (OPIC) and the European Bank for Reconstruction
and Development (EBRD) to finance construction of a carbon black manufacturing
plant. Both facilities became non-recourse to Columbian Chemicals Company
subsequent to the satisfaction of certain completion tests during the first
quarter of 1996. The OPIC facility is a $24.5 million fixed rate dollar
borrowing bearing interest rates of between 8.01 percent and 9.15 percent, and
the EBRD $9 million loan is a fixed rate dollar borrowing bearing an interest
rate of 8.30 percent. The balances due on these borrowings mature in the years
1997 through 2001.
13. SHAREHOLDERS' EQUITY
On March 6, 1996, the Corporation announced that its current share purchase
authorization program had been increased from 5 million shares to 10 million
shares. During 1996, the Corporation purchased 4,297,300 of its common shares at
a total cost of $273.2 million. There were 64,711,000 shares outstanding on
December 31, 1996. During 1995, the Corporation purchased 2,760,600 of its
common shares at a total cost of $163 million. These purchases included
2,675,600 shares under a 5 million share buy-back program authorized on March 7,
1995, and 85,000 shares under a superseded program. These purchased shares were
restored to the treasury.
The Corporation has 6,000,000 authorized preferred shares with a par
value of $1.00 each; no shares were outstanding at either December 31, 1996, or
December 31, 1995.
In 1988, the Corporation adopted a Preferred Share Purchase Rights Plan
and declared a dividend of one right on each of its common shares. In certain
circumstances, if a person or group of persons acquires or tenders for 20
percent or more of the Corporation's outstanding common shares, these rights
vest and entitle the holder to certain share purchase rights. Until 10 days
after vesting, the rights may be modified or redeemed by the Board of Directors.
14. STOCK OPTION PLANS; RESTRICTED STOCK
Executives and other key employees have been granted options to purchase common
shares under stock option plans adopted in 1979, 1987 and 1993. In each case,
the option price equals the fair market value of the common shares on the day of
the grant and an option's maximum term is 10 years. Options granted vest ratably
over a three-year period. The options include limited stock appreciation rights
under which an optionee has the right, in the event common shares are purchased
pursuant to a third party tender offer or in the event a merger or similar
transaction in which the Corporation shall not survive as a publicly held
corporation is approved by the Corporation's shareholders, to relinquish the
option and to receive from the Corporation an amount per share equal to the
excess of the price payable for a common share in such offer or transaction over
the option price per share.
The Corporation elected the adoption of Statement of Financial
Accounting Standards (SFAS) No. 123, "Accounting for Stock-Based Compensation,"
in 1995. In accordance with the provisions of SFAS No. 123, the Corporation
applies APB Opinion 25 and related Interpretations in accounting for its stock
option plans and, accordingly, does not recognize compensation cost. If the
Corporation had elected to recognize compensation cost based on the fair value
of the options granted at grant date as prescribed by SFAS No. 123, net income
and earnings per share would have been reduced to the pro forma amounts
indicated in the table below (in millions except per share amounts):
- --------------------------------------------------------------------------------
1996 1995 1994
---- ---- ----
Net income - as reported $ 461.8 746.6 271.0
Net income - pro forma 456.2 741.6 266.8
Earnings per share - as reported 6.97 10.65 3.81
Earnings per share - pro forma 6.89 10.60 3.76
- --------------------------------------------------------------------------------
The fair value of each option grant is estimated on the date of grant
using a Black-Scholes option-pricing model with the following assumptions:
1996 1995
------ ------
Expected dividend yield 3.32% 3.34%
Expected stock price volatility 24.0% 22.1%
Risk-free interest rate 5.7% 6.0%
Expected life of options 3 years 3 years
The weighted average fair value of options granted during 1996 was $12.68 per
share, compared with $11.04 in 1995.
The 1993 plan provides (and the 1987 plan provided) for "reload" option
grants to executives and other key employees. If an optionee exercises an option
under the 1993 or 1987 plan with already-owned shares of the Corporation, the
optionee receives a reload option that restores the option opportunity on a
number of common shares equal to the number of shares used to exercise the
original option. A reload option has the same terms as the original option
except that it has an exercise price per share equal to the fair market value of
a common share on the date the reload option is granted and is exercisable six
months after the date of grant.
The 1993 plan provides (and the 1987 plan provided) for the issuance to
executives and other key employees, without any payment by them, of common
shares subject to certain restrictions (Restricted Stock). The 1993 plan limits
the award of Restricted Stock to 1,000,000 shares.
Under a stock option plan adopted in 1989, options to purchase common
shares have been granted to directors who have not been employees of the
Corporation or its subsidiaries for one year or are not eligible to participate
in any plan of the Corporation or its subsidiaries entitling participants to
acquire stock, stock options or stock appreciation rights.
In 1996, the Corporation suspended the 1989 Directors Stock Option Plan
(1989 Plan), thereby eliminating the annual grant of options to directors. The
1989 Plan was replaced with the 1997 Directors Stock Unit Plan which provides to
each non-employee director an annual grant of stock units having a value
equivalent to the Corporation's common shares.
At December 31, 1996, options for 354,360 shares, 40,938 shares and
1,384,580 shares were exercisable under the 1987 plan, the 1989 plan and the
1993 plan, respectively, at average prices of $45.18, $41.93 and $57.99 per
share. In addition, 227,700 shares of Restricted Stock issued under the 1993
plan were outstanding at December 31, 1996. Also at December 31, 1996, 2,049,541
shares were available for option grants (including 748,758 shares as restricted
stock awards) under the 1993 plan (plus an additional 488,032 shares that may be
issued as reload options) and 83,219 shares were available for option grants
under the 1989 plan. These amounts are subject to future adjustment. No further
options may be granted under the 1987 plan. There were no options outstanding
under the 1979 plan as of December 31, 1996, or December 31, 1995.
Changes during 1994, 1995 and 1996 in options outstanding for the
combined plans were as follows:
- --------------------------------------------------------------------------------
Average option
Shares price per share
------ ----------------
Outstanding at December 31, 1993 2,379,561 $ 40.88
Granted 961,087 58.35
Exercised (479,660) 37.32
Expired or terminated (28,802) 44.34
---------
Outstanding at December 31, 1994 2,832,186 47.38
Granted 953,838 66.37
Exercised (635,881) 38.19
Expired or terminated (110,345) 51.03
---------
Outstanding at December 31, 1995 3,039,798 55.13
Granted 810,551 71.49
Exercised (552,973) 45.19
Expired or terminated (98,182) 62.71
---------
Outstanding at December 31, 1996 * 3,199,194 60.76
=========
- ---------------
* Exercise prices for options outstanding at December 31, 1996, range
from a minimum of approximately $21 per share to a maximum of
approximately $76 per share. The average remaining maximum term of
options outstanding is approximately eight years.
- --------------------------------------------------------------------------------
Changes during 1994, 1995 and 1996 in Restricted Stock were as follows:
- --------------------------------------------------------------------------------
Shares
------
Outstanding at December 31, 1993 100,200
Granted 14,226
Terminated (13,000)
Released (33,400)
---------
Outstanding at December 31, 1994 68,026
Granted 186,516
Released (28,617)
---------
Outstanding at December 31, 1995 225,925
Granted 17,000
Terminated (4,500)
Released (10,725)
---------
Outstanding at December 31, 1996 227,700
=========
- --------------------------------------------------------------------------------
15. PENSION PLANS
The Corporation has several non-contributory employee defined benefit pension
plans covering substantially all U.S. employees (the U.S. pension plans).
Employees covered under the salaried defined benefit pension plans are eligible
to participate upon the completion of one year of service, and benefits are
based upon final average salary and years of service. Employees covered under
the remaining plans are generally eligible to participate at the time of
employment, and benefits are generally based on a fixed amount for each year of
service. Employees are vested in the plans after five years of service. The
Corporation also maintains pension plans for certain employees of international
subsidiaries following the legal requirements in those countries.
In a number of these plans, the plan assets exceed the accumulated
benefit obligations (overfunded plans) and in the remainder of the plans, the
accumulated benefit obligations exceed the plan assets (underfunded plans).
The status of employee pension benefit plans at December 31 is
summarized below (in millions):
- --------------------------------------------------------------------------------
Overfunded Underfunded
Plans Plans
------------- ------------
1996 1995 1996 1995
---- ---- ---- ----
Actuarial present value of projected
benefit obligation, based on employment
service to date and current salary levels:
Vested employees $ 507 335 41 194
Non-vested employees 34 18 6 17
----- ----- ----- -----
Accumulated benefit obligation 541 353 47 211
Additional amounts related to projected
salary increases 43 39 6 5
----- ----- ----- -----
Total projected benefit obligation 584 392 53 216
Plan assets at fair value 681 448 22 178
----- ----- ----- -----
Projected pension benefit obligation in
excess of (less than) plan assets (97) (56) 31 38
Unamortized net asset (liability)
existing at January 1, 1985 5 10 - (3)
Unrecognized prior service cost (22) (14) (5) (15)
Unrecognized net gain (loss) from
actuarial experience 23 (12) (9) (11)
----- ----- ----- -----
Accrued (prepaid) pension cost $ (91) (72) 17 9
===== ===== ===== =====
- --------------------------------------------------------------------------------
The Corporation's pension plans were valued between November 1, 1994,
and January 1, 1995, and between November 1, 1995, and January 1, 1996. The
obligations were projected to and the assets were valued as of the end of 1995
and 1996. Of its 13 U.S. pension plans at December 31, 1996, nine were
overfunded while four were underfunded. Effective November 30, 1996, 10 U.S.
salaried and non-bargained hourly pension plans were consolidated into one plan.
In addition, pension plans were added in 1996 as a result of the acquisition of
Nesor Alloy Corporation. Of the Corporation's 21 U.S. pension plans at December
31, 1995, eight were overfunded while 13 were underfunded. The majority of plan
assets are invested in a diversified portfolio of stocks, bonds and cash or cash
equivalents. A small portion of the plan assets is invested in pooled real
estate and other private corporate investment funds.
The components of net periodic pension cost were as follows (in
millions):
- --------------------------------------------------------------------------------
1996 1995 1994
---- ---- ----
Benefits earned during the year $ 14.2 11.2 12.6
Interest accrued on projected benefit
obligation 43.4 42.9 40.1
Return on assets - actual (108.4) (119.6) (0.4)
- unrecognized gain (loss) 51.8 66.6 (51.2)
Net amortization 1.5 1.0 1.2
------- ------- -------
Net periodic pension cost for the year $ 2.5 2.1 2.3
======= ======= =======
- --------------------------------------------------------------------------------
Assumptions used to develop the net periodic pension cost included a
7.25 percent discount rate in 1996, compared with discount rates of 8.5 percent
and 7.25 percent in 1995 and 1994, respectively. An expected long-term rate of
return on assets of 9.5 percent and a rate of increase in compensation levels of
4 percent were used for 1996, 1995 and 1994. For the valuation of pension
obligations, the discount rate at the end of 1996 was 7.25 percent, equivalent
to the discount rate at the end of 1995 and decreased from 8.5 percent at the
end of 1994.
The Corporation recognizes a minimum liability in its financial
statements for its underfunded plans. "Other liabilities and deferred credits"
at December 31, 1996, included $10 million relating to this minimum liability,
compared with $26 million at December 31, 1995. This amount was offset by a $4
million intangible asset, a $4 million reduction in "Common Shareholders'
Equity" and a $2 million deferred tax benefit at December 31, 1996, compared
with an $18 million intangible asset, a $5 million reduction in "Common
Shareholders' Equity" and a $3 million deferred tax benefit at December 31,
1995.
The Corporation intends to fund at least the minimum amount required
under the Employee Retirement Income Security Act of 1974 for U.S. plans or, in
the case of international subsidiaries, the minimum legal requirements in that
particular country. The excess of amounts accrued over minimum funding
requirements, together with such excess amounts accrued in prior years, have
been included in "Other liabilities and deferred credits." The anticipated
funding for the current year is included in "Accounts payable and accrued
expenses."
16. POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
The Corporation records its obligation for postretirement medical and life
insurance benefits on the accrual basis. One of the principal requirements of
the method is that the expected cost of providing such postretirement benefits
be accrued during the years employees render the necessary service.
Substantially all of the Corporation's U.S. employees who retire from
active service on or after normal retirement age of 65 are eligible for life
insurance benefits. The Corporation also provides postretirement life insurance
for employees of international subsidiaries in some cases. Life insurance
benefits also are available under certain early retirement programs or pursuant
to the terms of certain collective bargaining agreements. The majority of the
costs of such benefits were paid out of a previously established fund maintained
by an insurance company; however, a portion was paid through an insurance
contract. Health care insurance benefits also are provided for many employees
retiring from active service. The coverage is provided on a non-contributory
basis for certain groups of employees and on a contributory basis for other
groups. The majority of these benefits are paid by the Corporation.
The status of employee postretirement benefit plans at December 31 is
summarized below (in millions):
- --------------------------------------------------------------------------------
1996 1995
---- ----
Accumulated Postretirement Benefit Obligation:
Retirees $ 74 80
Fully eligible active plan participants 14 10
Other active plan participants 64 61
------- -------
Total accumulated postretirement benefit
obligation 152 151
Plan assets at fair value 11 11
------- -------
Accumulated postretirement benefit obligation in
excess of plan assets 141 140
Unrecognized prior service cost 7 7
Unrecognized net gain (loss) from actuarial
experience (1) (10)
------- -------
Accrued postretirement benefit cost $ 147 137
======= =======
- --------------------------------------------------------------------------------
The components of net periodic postretirement benefit cost were as
follows (in millions):
- --------------------------------------------------------------------------------
1996 1995 1994
---- ---- ----
Benefits attributed to service during
the year $ 4 4 4
Interest cost on accumulated postretirement
benefit obligation 10 11 10
Return on assets - actual (1) (1) (1)
Net amortization - (1) (1)
------- ------- -------
Net periodic postretirement benefit cost
for the year $ 13 13 12
======= ======= =======
- --------------------------------------------------------------------------------
For 1996 measurement purposes, annual rates of increase in the per
capita cost of covered health care benefits were assumed to average 8 percent
for 1997 decreasing gradually to 5.3 percent by 2008 and remaining at that level
thereafter. For 1995 measurement purposes, annual rates of increase in the per
capita cost of covered health care benefits were assumed to average 9 percent
for 1996 decreasing gradually to 5.3 percent by 2010 and remaining at that level
thereafter. The health care cost trend rate assumption has a significant effect
on the amounts reported. To illustrate, increasing the assumed health care cost
trend rates by 1 percentage point in each year would increase the accumulated
postretirement benefit obligation as of December 31, 1996, by approximately
$12.4 million and the aggregate of the service and interest cost components of
net periodic postretirement benefit cost for the year then ended by
approximately $1 million.
The weighted average discount rate used in determining the accumulated
postretirement benefit obligation was 7.25 percent for 1996, the same as that
used for 1995. The expected long-term rate of return on plan assets was 8
percent for both years. Assumptions used to develop net periodic postretirement
benefit cost included a 7.25 percent discount rate in 1996, a decrease from 8.5
percent in 1995 and equivalent to the 7.25 percent discount rate used in 1994.
17. COMMITMENTS
Rent expense for the years 1996, 1995 and 1994 was (in millions): $15.6, $18.8
and $23.5, respectively. Future minimum lease payments for all noncancelable
operating leases having a remaining term in excess of one year totaled $53.0
million at December 31, 1996. These commitments for future periods are as
follows (in millions): 1997 - $12.6; 1998 - $10.3; 1999 - $9.1; 2000 - $6.0;
2001 - $5.3; 2002 and thereafter - $9.7.
The Corporation enters into price protection arrangements from time to
time, depending on market circumstances, to ensure a minimum price for a portion
of its expected future mine production. See Note 19 to the Consolidated
Financial Statements to which reference should be made for a fuller
understanding of these arrangements with respect to expected 1997 production.
On December 31, 1996, the Corporation's share of outstanding
commitments was approximately $72 million to construction contractors and
equipment manufacturers for the expansion of the Candelaria copper mining
complex in northern Chile.
18. CONTINGENCIES
The Corporation is from time to time involved in various legal proceedings of a
character normally incident to its past and present businesses. Management does
not believe that the outcome of these proceedings will have a material adverse
effect on the financial condition or results of operations of the Corporation on
a consolidated basis.
The Corporation is subject to federal, state and local environmental
laws, rules and regulations, including the Comprehensive Environmental Response,
Compensation and Liability Act of 1980 (CERCLA or Superfund), as amended by the
Superfund Amendments and Reauthorization Act of 1986. Under Superfund, the
Environmental Protection Agency (EPA) has identified approximately 35,000 sites
throughout the United States for review, ranking and possible inclusion on the
National Priorities List (NPL) for possible response. Among the sites
identified, EPA has included 13 sites owned by the Corporation. The Corporation
believes that most, if not all, of its sites so identified will not qualify for
listing on the NPL.
In addition, the Corporation may be required to remove hazardous waste
or remediate the alleged effects of hazardous substances on the environment
associated with past disposal practices at sites not owned by the Corporation.
The Corporation has received notice that it is a potentially responsible party
from EPA and/or individual states under CERCLA or a state equivalent and is
participating in environmental assessment and remediation activity at 37 sites.
The amounts of the Corporation's liabilities for remedial activities
are very difficult to estimate due to such factors as the unknown extent of the
remedial actions that may be required and, in the case of sites not owned by the
Corporation, the unknown extent of the Corporation's probable liability in
proportion to the probable liability of other parties. The Corporation has
probable environmental liabilities that in its judgment cannot reasonably be
estimated, and losses attributable to remediation costs are reasonably possible
at other sites. The Corporation cannot now estimate the total additional loss it
may incur for such environmental liabilities, but such loss could be substantial
(see Notes 1 and 2 to the Consolidated Financial Statements for further
information concerning the Corporation's environmental obligations).
In 1993 and 1994, the New Mexico and Arizona legislatures,
respectively, passed laws requiring the reclamation of mined lands in those
states. The New Mexico Mining Commission adopted rules for the New Mexico
program during 1994, and the Corporation's operations began submitting the
required permit applications in December 1994. The Arizona State Mine Inspector
has adopted rules for the Arizona program in January 1997, and the Corporation's
operations are expected to begin submitting the required reclamation plans in
March 1997. These laws and regulations will likely increase the Corporation's
regulatory obligations and compliance costs with respect to mine closure and
reclamation. At this time, it is not possible to quantify the impact of the new
laws and regulations on the Corporation.
By a letter agreement dated September 7, 1990, the Corporation and the
San Carlos Apache Tribe agreed upon principles to settle the water claims of
that Tribe and other land use issues involving the Tribe's reservation. Since
that time, comprehensive settlement agreements among the Tribe, the Corporation
and other parties have been under negotiation. In the more recent phases of the
settlement negotiations, the Tribe has sought terms that the Corporation
believes are unacceptable and inconsistent with the principles set forth in the
September 7, 1990, letter agreement. The Tribe has also notified the Corporation
to make preparations to stop using the reservation for water transportation by
July 1997, at the latest. The Corporation obtains water for its Morenci complex
from several sources, including through the operation of a pump station on
reservation lands adjacent to the Black River, and uses the natural channel of
Eagle Creek, which is partially located on the reservation, to transport water
from Black River and certain other sources to its Morenci complex. The
Corporation believes that it holds valid rights of way and easements and has
other legal rights sufficient to allow for the continued operation of the Black
River pump station on reservation lands and for the use of Eagle Creek. However,
if the Corporation were to lose the use of the Black River pump station, and was
unable to transport water using the natural channel of Eagle Creek, that might
adversely affect production at the Morenci complex depending upon the
availability of alternative sources of water. The parties are continuing to
discuss all of these matters. The federal legislation authorizing settlement of
the Tribe's water rights claims with the Corporation and the other parties to
the proceeding has been extended for a six-month period expiring June 30, 1997.
19. DERIVATIVE FINANCIAL INSTRUMENTS HELD FOR PURPOSES OTHER THAN TRADING AND
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Corporation does not acquire, hold or issue derivative financial instruments
for trading purposes. Derivative financial instruments are used to manage
well-defined commodity price, foreign exchange and, to a lesser extent, interest
rate risks, that arise out of the Corporation's core business activities. The
fair values of the Corporation's derivative financial instruments are based on
quoted market prices for similar financial instruments. A summary of derivative
financial instruments held by the Corporation is as follows:
COPPER PRICE PROTECTION AGREEMENTS - Depending on market conditions,
the Corporation may periodically purchase or sell various copper option
contracts to mitigate the risk of adverse price fluctuations on a portion of its
expected future mine production. With respect to 1996 production, the
Corporation had contracts that provided a combination of minimum and maximum
quarterly average London Metal Exchange (LME) prices for approximately 185
million pounds of third quarter copper production that resulted in payments of
$3.1 million to Phelps Dodge. In addition, the Corporation had contracts that
provided a combination of minimum and maximum LME prices per pound for
approximately 790 million pounds of copper that expired without payment to
Phelps Dodge. During the 1996 third quarter, the Corporation sold copper price
protection contracts that covered 94 million pounds of anticipated production in
the fourth quarter of 1996 and 85 million pounds of anticipated production in
the first quarter of 1997. This resulted in immediate cash payments to the
Corporation of $15.6 million. Consequently, $8.8 million for 1996 fourth quarter
contracts was recognized in income during the fourth quarter and $6.8 million
for 1997 first quarter contracts was deferred and will be recognized in income
during the 1997 first quarter.
With respect to 1995 production, the Corporation had contracts that
provided minimum quarterly average LME prices of 80 cents per pound for
approximately 640 million pounds of copper. These contracts expired without
payment to Phelps Dodge. In addition, the Corporation had contracts in 1995 that
provided minimum (approximately 95 cents) and maximum (approximately $1.33) LME
prices per pound for approximately 650 million pounds of copper. These contracts
expired on December 31, 1995, and the Corporation made payments totaling $1.3
million to the financial institutions involved. During 1994, contracts that
provided the Corporation with minimum average LME copper prices of 75 cents per
pound for about 244 million pounds of production expired without payment to
Phelps Dodge.
With respect to 1997 production, the Corporation has entered into
contracts with several financial institutions that provide for a minimum 1997
first quarter average price of 90 cents per pound for a net position of
approximately 85 million pounds of copper cathode.
COPPER FUTURES CONTRACTS - The Corporation's objective and practice is
to sell its copper at a price based on the New York Commodity Exchange (COMEX)
average price in the month of shipment. However, a few customers request a firm
price as of a specified date prior to or during the month of shipment. In such
transactions, the Corporation usually hedges such sales commitments by entering
into copper futures and copper swap contracts that approximate the shipment
quantities and periods. The copper futures contracts are then liquidated during
the month of shipment which generally results in realization of the COMEX
average monthly price for copper shipped. The liquidation process involves the
use of offsetting futures contracts. Therefore, the notional value, which
represents the absolute sum of all outstanding copper futures contracts, is not
an accurate measurement of risk to the Corporation from the use of such
derivative financial instruments. Swap contracts are settled at the COMEX
average monthly price in the month copper is shipped. At December 31, 1996, the
Corporation had futures and swap hedge contracts in place for approximately 149
million pounds of copper with an approximate net value of $143 million and an
aggregate notional value of approximately $156 million. The copper futures and
swap contracts acquired by the Corporation at year end had maturities of two
years or less. The Corporation had deferred unrecognized gains of $2.3 million
on its futures and swap contracts at December 31, 1996. With respect to 1995, at
year end the Corporation had futures and swap hedge contracts in place for
approximately 104 million pounds of copper at an approximate net value of $125
million and an aggregate notional value of approximately $125 million. At
December 31, 1995, the Corporation had deferred unrecognized losses on its
futures and swap contracts of $2.4 million as the offsetting customer
transactions had not matured.
FOREIGN EXCHANGE CONTRACTS - The Corporation periodically enters into
forward exchange and currency option contracts to hedge certain recorded
transactions, firm commitments and other anticipated transactions denominated in
foreign currencies. The objective of the Corporation's foreign currency hedging
activities is to protect the Corporation from the risk that the eventual
equivalent dollar cash flows resulting from transactions denominated in foreign
currencies will be adversely affected by changes in exchange rates. In hedging a
transaction, the Corporation's foreign exchange hedging strategy may, from time
to time, involve the use of a number of offsetting currency contracts to
minimize the cost of the underlying hedge. Thus, the notional value, which
represents the arithmetic sum of all outstanding foreign currency hedging
instruments, is not a measurement of risk to the Corporation from the use of
derivative financial instruments. At December 31, 1996, the Corporation had
protection in place for approximately $141 million of recorded, committed and
anticipated foreign currency transactions through the use of forward contracts
and currency options with a matching aggregate notional value. The forward
contracts and currency options acquired by the Corporation have maturities of
less than one year. The Corporation did not have any deferred unrecognized gains
or losses on its foreign exchange contracts at December 31, 1996, or December
31, 1995.
INTEREST RATE PROTECTION AGREEMENT - The Corporation has caused its
80-percent-owned Candelaria copper project in Chile to enter into an interest
rate protection agreement with certain financial institutions to limit the
effect of increases in the interest rate on $200 million of floating rate
dollar-denominated debt. Under the terms of the agreement, the project will
receive payments from these institutions if the six-month London Interbank
Offered Rate (LIBOR) exceeds 9 percent prior to December 31, 2001, and 11
percent during the two subsequent years ending December 31, 2003.
CREDIT RISK - The Corporation is exposed to credit loss in the event of
nonperformance by counterparties to its price protection, foreign exchange and
interest rate protection agreements. To minimize the risk of credit loss, the
Corporation deals only with highly rated financial institutions and monitors the
credit worthiness of these institutions on a continuing basis. The Corporation
does not anticipate nonperformance by any of these counterparties.
The methods and assumptions used to estimate the fair value of each
class of financial instrument for which it is practicable to estimate a value
are as follows:
Cash and short-term investments -- the carrying amount is a reasonable
estimate of the fair value because of the short maturity of those
instruments.
Investments and long-term receivables -- the fair values of some
investments are estimated based on quoted market prices for those or
similar investments. The fair values of other types of instruments are
estimated by discounting the future cash flows using the current rates
at which similar instruments would be made with similar credit ratings
and for the same remaining maturities.
Long-term debt -- the fair value of substantially all of the
Corporation's long-term debt is estimated based on the quoted market
prices for the same or similar issues or on the current notes offered
to the Corporation for debt of the same remaining maturities.
Standby letters of credit and financial guarantees -- the fair values
of guarantees and letters of credit are based on fees currently charged
for similar agreements or on the estimated cost to terminate them or
otherwise settle the obligations with the counterparties at the
reporting date. The Corporation, including certain subsidiaries, have
various guarantees and letters of credit totaling $86.2 million. There
is no market for these guarantees or standby letters of credit and they
were issued without explicit cost. Therefore, it is not practicable to
establish their fair value.
The estimated fair values of the Corporation's financial instruments as
of December 31, 1996, were as follows (in millions):
- --------------------------------------------------------------------------------
Carrying Fair
Amount Value
-------- -----
Cash and short-term investments $ 470.1 470.1
Copper option contracts - assets (liabilities) (5.1) 0.3
Investments and long-term receivables (including
amounts due within one year) for which it is
practicable to estimate fair value * 37.5 188.6
Long-term debt (including amounts due
within one year) 592.8 613.4
Interest rate protection agreements - assets 2.5 1.0
Foreign currency exchange contracts - assets
(liabilities) (0.6) (0.7)
- -----------
* The Corporation's largest cost basis investment is its minority
interest in Southern Peru Copper Corporation (SPCC), which is carried
at a book value of $13.2 million. Phelps Dodge's interest in SPCC was
reduced from 16.25 percent to 13.9 percent through an exchange offering
of SPCC common shares consummated in 1996. Based on the New York Stock
Exchange closing market price of those SPCC shares as of December 31,
1996, the estimated fair value of the Corporation's investment in SPCC
is approximately $163 million. Phelps Dodge's ownership interest in
SPCC is represented by its share of a class of SPCC common stock which
is currently not registered for trading on any public exchange.
- --------------------------------------------------------------------------------
20. BUSINESS SEGMENT DATA
The Corporation's business consists of two segments, Phelps Dodge Mining Company
and Phelps Dodge Industries. The principal activities of each segment are
described below, and the accompanying tables present results of operations and
other financial information by segment and by significant geographic area.
Phelps Dodge Mining Company is an international business comprising a
group of companies involved in vertically integrated copper operations including
mining, concentrating, electrowinning, smelting and refining, rod production,
marketing and sales, and related activities. Copper is sold primarily to others
as rod, cathode or concentrates, and as rod to the Phelps Dodge Industries
segment. In addition, Phelps Dodge Mining Company at times smelts and refines
copper and produces copper rod for others on a toll basis, and produces gold,
silver, molybdenum and copper chemicals as byproducts, and sulfuric acid from
its air quality control facilities. This segment also includes the Corporation's
other mining operations and investments (including fluorspar, silver, lead and
zinc operations) and its worldwide mineral exploration and development programs.
Phelps Dodge Industries is a business segment comprising a group of
companies that manufacture engineered products principally for the
transportation, energy and telecommunications sectors worldwide. Its operations
are characterized by products with significant market share, internationally
competitive cost and quality, and specialized engineering capabilities. This
business segment includes the Corporation's specialty chemicals operations
through Columbian Chemicals Company and its subsidiaries; its wheel and rim
operations through Accuride Corporation and its subsidiaries; and its wire and
cable and specialty conductor operations through Phelps Dodge International
Corporation and Phelps Dodge Magnet Wire Company and their subsidiaries and
affiliates.
The Corporation's total 1996 sales included exports of $60.2 million
from U.S. operations to unaffiliated foreign customers, compared with $93.7
million in 1995 and $76.2 million in 1994. Intersegment sales reflect the
transfer of copper from Phelps Dodge Mining Company to Phelps Dodge Industries
at the same prices charged to outside customers.
The following tables give a summary of financial data by business
segment and geographic area for the years 1994 through 1996. Major unusual items
during the three-year period included (i) a 1996 pre-tax provision of $10.0
million included in Phelps Dodge Mining Company's operating income resulting
from a reclamation provision related to the Court ordered rescission of a 1986
sale of property, (ii) a 1995 pre-tax gain of $26.8 million included in Phelps
Dodge Industries' operating income from the sale by its carbon black operations
of a synthetic iron oxide facility, (iii) a 1994 pre-tax charge of $94.4 million
to Phelps Dodge Mining Company's operating income for costs associated with
environmental matters and asset dispositions, and (iv) a 1994 pre-tax charge of
$44.6 million to Phelps Dodge Industries' operating income for costs associated
with environmental matters and asset dispositions, including $17.6 million for
carbon black facilities and $27.0 million for wire and cable and specialty
conductor facilities. (See Note 2 to the Consolidated Financial Statements for a
further discussion of these issues.)
<PAGE>
FINANCIAL DATA BY BUSINESS SEGMENT
(In millions)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
Phelps Dodge Industries
Phelps --------------------------------
Dodge Specialty Wheels Wire Corporate
Mining Chemicals & Rims & Cable Total & Other Total
------ ------ ------ ------- ----- ------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
1996
Sales and other operating revenues:
Unaffiliated customers $ 2,091.1 437.0 307.8 950.7 1,695.5 - 3,786.6
Intersegment 265.8 - - 0.5 0.5 - 266.3
Operating income (loss) 526.6 79.8 41.4 104.6 225.8 (39.5) 712.9
Identifiable assets at
December 31 2,938.2 476.0 285.4 802.9 1,564.3 313.9 4,816.4
Depreciation, depletion and
amortization 150.7 34.3 20.1 42.8 97.2 1.6 249.5
Capital outlays 330.2 72.2 9.6 97.8 179.6 3.2 513.0
Equity earnings 6.9 0.1 0.1 3.4 3.6 - 10.5
- -------------------------------------------------------------------------------------------------------
1995
Sales and other operating revenues:
Unaffiliated customers $ 2,488.7 420.8 357.8 918.1 1,696.7 - 4,185.4
Intersegment 275.0 - - 0.6 0.6 - 275.6
Operating income (loss) 896.8 103.9 45.6 93.8 243.3 (39.6) 1,100.5
Identifiable assets at
December 31 2,839.2 424.0 299.5 632.0 1,355.5 451.2 4,645.9
Depreciation, depletion and
amortization 134.0 33.2 21.1 33.9 88.2 1.3 223.5
Capital outlays 321.6 22.6 6.9 52.8 82.3 1.0 404.9
Equity earnings 4.5 - 0.3 1.7 2.0 - 6.5
- -------------------------------------------------------------------------------------------------------
1994
Sales and other operating revenues:
Unaffiliated customers $ 1,820.7 335.0 333.6 799.9 1,468.5 - 3,289.2
Intersegment 218.5 - - 1.7 1.7 - 220.2
Operating income (loss) 326.4 20.0 42.3 43.8 106.1 (32.1) 400.4
Identifiable assets at
December 31 2,450.2 439.9 341.8 621.5 1,403.2 280.4 4,133.8
Depreciation, depletion and
amortization 105.1 34.1 20.5 34.5 89.1 1.1 195.3
Capital outlays 299.2 19.6 6.4 29.1 55.1 0.7 355.0
Equity earnings 5.6 0.3 0.3 2.4 3.0 - 8.6
- -------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
FINANCIAL DATA BY GEOGRAPHIC AREA
(In millions)
- ----------------------------------------------------------------------------
1996 1995 1994
---- ---- ----
SALES AND OTHER OPERATING REVENUES:
Unaffiliated customers
United States $ 2,773.5 3,072.6 2,485.9
Latin America 414.6 537.3 346.7
Other 598.5 575.5 456.6
---------- ---------- ----------
$ 3,786.6 4,185.4 3,289.2
========== ========== ==========
Intergeographic areas *
United States $ 11.9 13.1 19.3
Latin America 14.9 23.7 -
Other 43.5 47.9 54.4
---------- ---------- ----------
$ 70.3 84.7 73.7
========== ========== ==========
OPERATING INCOME:
United States $ 544.9 810.4 337.2
Latin America 64.5 196.8 30.0
Other 103.5 93.3 33.2
---------- ---------- ----------
$ 712.9 1,100.5 400.4
========== ========== ==========
IDENTIFIABLE ASSETS AT DECEMBER 31:
United States $ 3,196.2 3,157.1 2,789.0
Latin America 1,000.1 931.3 798.2
Other 620.1 557.5 546.6
---------- ---------- ----------
$ 4,816.4 4,645.9 4,133.8
========== ========== ==========
- -----------
* Intracompany sales from the geographic area referenced to the other
geographic areas listed.
- --------------------------------------------------------------------------------
Item 9. Disagreements on Accounting and Financial Disclosure
- -------------------------------------------------------------
None.
Part III
Items 10, 11, 12 and 13.
- ------------------------
The information called for by Part III (Items 10, 11, 12 and 13) is
incorporated herein by reference from the material included under the captions
"Election of Directors," "Beneficial Ownership of Securities," "Executive
Compensation" and "Other Matters" in Phelps Dodge Corporation's definitive proxy
statement (to be filed pursuant to Regulation 14A) for its Annual Meeting of
Shareholders to be held May 7, 1997 (the 1997 Proxy Statement), except that the
information regarding executive officers called for by Item 401 of Regulation
S-K is included in Part I of this report. The 1997 Proxy Statement is being
prepared and will be filed with the Securities and Exchange Commission and
furnished to shareholders on or about April 1, 1997.
Part IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
- ---------------------------------------------------------------------------
(a) 1. Financial Statements.
2. Financial Statement Schedule.
3. Exhibits:
3.1 Restated Certificate of Incorporation of the Corporation,
effective June 16, 1987 (incorporated by reference to Exhibit 3.1
to the Corporation's Form 10-Q for the quarter ended June 30,
1987 (SEC File No. 1-82)). Certificate of Amendment of such
Restated Certificate of Incorporation, effective August 4, 1988,
and Certificate of Amendment of such Restated Certificate of
Incorporation, effective August 9, 1988 (incorporated by
reference to Exhibits 3.1 and 3.2 to the Corporation's Form 10-Q
for the quarter ended September 30, 1988 (SEC File No. 1-82)).
Complete composite copy of the Certificate of Incorporation of
the Corporation as amended to date (incorporated by reference to
Exhibit 3.1 to the Corporation's 1992 Form 10-K (SEC File No.
1-82)).
3.2 By-Laws of the Corporation, as amended effective March 5, 1997
(SEC File No. 1-82).
4.1 Reference is made to Exhibits 3.1 and 3.2 above.
4.3 Rights Agreement, dated as of July 29, 1988 and Amended and
Restated as of December 6, 1989, between the Corporation and
Chase Bank (formerly Chemical Bank), which includes the form of
Certificate of Amendment setting forth the terms of the Junior
Participating Cumulative Preferred Shares, par value $1.00 per
share, as Exhibit A, the form of Right Certificate as Exhibit B
and the Summary of Rights to Purchase Preferred Shares as Exhibit
C (incorporated by reference to Exhibit 1 to the Corporation's
Current Report on Form 8-K filed on December 7, 1989 (SEC File
No. 1-82)).
Note: Certain instruments with respect to long-term debt of the
Corporation have not been filed as Exhibits to this Report since
the total amount of securities authorized under any such
instrument does not exceed 10 percent of the total assets of the
Corporation and its subsidiaries on a consolidated basis. The
Corporation agrees to furnish a copy of each such instrument upon
request of the Securities and Exchange Commission.
10. Management contracts and compensatory plans and agreements.
10.1 The Corporation's 1987 Stock Option and Restricted Stock Plan
(the 1987 Plan), as amended to and including June 3, 1992, and
form of Stock Option Agreement and form of Reload Option
Agreement, both as modified through June 3, 1992 (incorporated by
reference to Exhibit 10.2 of the Corporation's Form 10-Q for the
quarter ended June 30, 1992 (SEC File No. 1-82)). Form of
Restricted Stock letter under the 1987 Plan (incorporated by
reference to Exhibit 10.1 to the Corporation's 1990 10-K (SEC
File No. 1-82)) and the amendment thereto dated June 25, 1992
(incorporated by reference to Exhibit 10.2 to the Corporation's
1992 Form 10-K (SEC File No. 1-82)).
10.2 The Corporation's 1989 Directors Stock Option Plan (the 1989
Directors Plan), as amended to and including June 3, 1992,
suspended effective November 6, 1996 (incorporated by reference
to Exhibit 10.3 to the Corporation's Form 10-Q for the quarter
ended June 30, 1992 (SEC File No. 1-82)). Form of Stock Option
Agreement under the 1989 Directors Plan (incorporated by
reference to the Corporation's Registration Statement on Form S-8
(Reg. No. 33-34363)).
10.3 The Corporation's 1993 Stock Option and Restricted Stock Plan
(the 1993 Plan), as amended through December 1, 1993, and form of
Restricted Stock letter under the 1993 Plan (incorporated by
reference to Exhibit 10.4 to the Corporation's 1993 Form 10-K
(SEC File No. 1-82)). Form of Stock Option Agreement and form of
Reload Option Agreement, both as amended through November 2,
1994, under the 1993 Plan (incorporated by reference to Exhibit
10.3 to the Corporation's 1994 Form 10-K (SEC File No. 1-82)).
Note: Omitted from filing pursuant to the Instruction to Item
601(b) (10) are actual Stock Option Agreements between the
Corporation and certain officers, under the 1987 Plan and the
1993 Plan, and certain Directors, under the 1989 Directors Plan,
which contain substantially similar provisions to Exhibits 10.1,
10.2 and 10.3 above.
10.4 Description of the Corporation's Incentive Compensation Plan
(incorporated by reference to Exhibit 10.5 to the Corporation's
1993 Form 10-K (SEC File No. 1-82)).
10.5 Deferred Compensation Plan for the Directors of the Corporation,
amended and restated as of December 4, 1996 (SEC File No. 1-82).
10.6 Form of Change-of-Control Agreement between the Corporation and
certain executives, including all of the current executive
officers to be listed in the summary compensation table to the
1997 Proxy Statement (incorporated by reference to Exhibit 10.7
to the Corporation's 1992 Form 10-K (SEC File No. 1-82)).
10.7 Form of Severance Agreement between the Corporation and certain
executives, including all of the current executive officers to be
listed in the summary compensation table to the 1997 Proxy
Statement (incorporated by reference to Exhibit 10.11 to the
Corporation's 1988 Form 10-K (SEC File No. 1-82)).
10.8 The Corporation's Retirement Plan for Directors, effective
January 1, 1988 (incorporated by reference to Exhibit 10.13 to
the Corporation's 1987 Form 10-K (SEC File No. 1-82)).
10.9 The Corporation's Comprehensive Executive Nonqualified Retirement
and Savings Plan (the Nonqualified Plan), as amended November 7,
1990 (incorporated by reference to Exhibit 10.14 to the
Corporation's 1990 Form 10-K (SEC File No. 1-82)). Amendment,
effective January 1, 1991, to the Nonqualified Plan (incorporated
by reference to Exhibit 10.2 to the Corporation's Form 10-Q for
the quarter ended June 30, 1991 (SEC File No. 1-82)). Four
amendments, one effective as of January 1, 1991, one effective as
of November 15, 1993 (both incorporated by reference to Exhibit
10.13 of the Corporation's 1993 Form 10-K (SEC File No. 1-82)),
one effective as of September 7, 1994 (incorporated by reference
to Exhibit 10.11 of the Corporation's 1994 Form 10-K (SEC File
No. 1-82)), and one effective June 7, 1995 (incorporated by
reference to Exhibit 10.11 of the Corporation's Form 10-Q for the
quarter ended June 30, 1995 (SEC File No. 1-82)).
10.10 The Corporation's 1997 Directors Stock Unit Plan effective
January 1, 1997 (SEC File No. 1-82).
12 Statement re computation of ratios of total debt to total
capitalization.
21 List of Subsidiaries and Investments.
23 Consent of Price Waterhouse LLP.
24 Powers of Attorney executed by certain officers and directors who
signed this Annual Report on Form 10-K.
Note: Shareholders may obtain copies of Exhibits by making
written request to the Secretary of the Corporation and
paying copying costs of 10 cents per page, plus postage.
(b) Reports on Form 8-K:
No current Reports on Form 8-K were filed by the Corporation during the
quarter ended December 31, 1996.
<PAGE>
Schedule VIII
PHELPS DODGE CORPORATION AND CONSOLIDATED SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
- --------------------------------------------------------------------------------
(In thousands)
Additions
-----------------
Balance at Charged to Balance
beginning costs and Deduc- at end
of period expenses Other tions of period
--------- -------- ----- ----- ---------
Reserve deducted in
balance sheet from
the asset to which
applicable:
Accounts Receivable:
December 31, 1996 $ 12,000 4,300 (200) 1,900 14,200
December 31, 1995 11,800 2,000 (800) 1,000 12,000
December 31, 1994 12,200 1,900 - 2,300 11,800
Supplies:
December 31, 1996 $ 10,500 1,300 100 3,000 8,900
December 31, 1995 14,000 600 200 4,300 10,500
December 31, 1994 12,700 700 3,100 2,500 14,000
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
PHELPS DODGE CORPORATION
(Registrant)
March 17, 1997 By: Thomas M. St. Clair
--------------------
Thomas M. St. Clair
Senior Vice President
and Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Chairman of the Board, President,
Chief Executive Officer
and Director
Douglas C. Yearley (Principal Executive Officer) March 17, 1997
- -------------------
Douglas C. Yearley
Senior Vice President
and Chief Financial Officer
Thomas M. St. Clair (Principal Financial Officer) March 17, 1997
- -------------------
Thomas M. St. Clair
Vice President and Controller
Gregory W. Stevens (Principal Accounting Officer) March 17, 1997
- -------------------
Gregory W. Stevens
Robert N. Burt, Paul W. Douglas, )
William A. Franke, Paul Hazen, Marie L. Knowles )
Robert D. Krebs, Southwood J. Morcott, ) March 17, 1997
Gordon R. Parker, J. Steven Whisler, Directors )
By: Thomas M. St. Clair
-------------------
Thomas M. St. Clair
Attorney-in-fact
Exhibit 3.2
Amended Effective March 5, 1997
B Y - L A W S
PHELPS DODGE CORPORATION
ARTICLE I. NAME, LOCATION and CORPORATE SEAL
Sec. 1. The name of this Corporation is PHELPS DODGE CORPORATION.
Sec. 2. The principal office of the Company shall be in the City of
Phoenix, County of Maricopa, State of Arizona. The Company shall also have such
other offices, either within or without the United States, and may transact its
business at such other places, as the Board of Directors may appoint.
Sec. 3. The corporate seal of the Company shall have inscribed thereon
the name of the corporation, and the year of its creation. It shall be of the
form impressed upon the margin hereof. It shall be in charge of the Secretary. A
duplicate of the seal may be kept and used by the Treasurer or by any Assistant
Secretary or Assistant Treasurer, when so ordered by the Board of Directors.
(Imprint of corporate seal)
ARTICLE II. SHAREHOLDERS
Sec. 1. Annual Meeting. The annual meeting of shareholders shall be
held at 12:00 noon on the first Wednesday in May of each year, or at such other
time on that day or at such time on such other day as the Board of Directors
shall from time to time determine, at the principal office of the Company in the
City of Phoenix, County of Maricopa, State of Arizona, or at such other place
within or without the State of New York as the Board of Directors shall from
time to time determine, for the purpose of electing Directors and for the
transaction of such other business as may properly be brought before the
meeting.
The Secretary shall cause to be sent by first class mail not less than
ten nor more than fifty days before the date of such meeting, a notice thereof
addressed to each shareholder of record entitled to vote at such meeting at his
or her address as it appears on the books of the Company. Notice may also be
sent by third class mail not less than twenty-four nor more than fifty days
before the date of such meeting. Any previously scheduled annual meeting of
shareholders may be postponed by resolution of the Board of Directors upon
public announcement of the postponement on or prior to the date previously
scheduled for such annual meeting of shareholders.
Sec. 2. Special Meetings. Special meetings of the shareholders may be
held at the principal office of the Company in the City of Phoenix, County of
Maricopa, State of Arizona, or at such other place within or without the State
of New York as the Board of Directors or the Chairman of the Board shall from
time to time determine, and may be called by vote of a majority of the Board of
Directors, or by the Chairman of the Board. Special meetings of the
shareholders, or of the holders of a particular class or series of shares, shall
also be called when required by the Certificate of Incorporation at the times
and in the manner therein set forth.
Notice of the time, place and purposes of any such special meeting
shall be served personally or sent by first class mail to each shareholder of
record entitled to vote at such meeting, not less than ten nor more than fifty
days before the date of such meeting, at his or her address as it appears on the
books of the Company. Notice may also be sent by third class mail not less than
twenty-four nor more than fifty days before the date of such meeting. A written
waiver of notice of any meeting may be made by any shareholder. Any previously
scheduled special meeting of the shareholders may be postponed by resolution of
the Board of Directors upon public announcement of the postponement on or prior
to the date previously scheduled for such special meeting of shareholders.
Sec. 3. Quorum. At any meeting of shareholders, unless otherwise
provided by law or by the Certificate of Incorporation, the holders of shares
(of any class) aggregating a majority of the total number of shares of all
classes of the Company then issued and outstanding and entitled to vote at the
meeting, present in person or represented by proxy, shall constitute a quorum,
provided that, unless otherwise provided by law or by the Certificate of
Incorporation, when a specified item of business is required to be voted on by
any one or more of a particular class or series of shares, voting as a separate
class, the holders of a majority of the shares so eligible to vote as a separate
class shall constitute a quorum for the transaction of such specified item of
business.
The shareholders present at any duly organized meeting may continue to
transact business until adjournment, notwithstanding the withdrawal of
sufficient shareholders to constitute the remaining shareholders less than a
quorum. Whether or not a quorum is present at a meeting, the person presiding at
the meeting or the holders of a majority of the shares of all classes of the
Company entitled to vote at the meeting so present or represented may adjourn
the meeting from time to time. At any such adjourned meeting at which a quorum
shall be present, any business may be transacted which might have been
transacted at the meeting as originally called.
Sec. 4. Chairman and Secretary. Meetings of shareholders shall be
presided over by the Chairman of the Board or, if he is not present, by the
President or, if neither of them is present, by a Vice Chairman, or if none of
them is present, by a Vice President or, if neither the Chairman of the Board,
the President, a Vice Chairman nor a Vice President is present, by a person to
be chosen at the meeting. The Secretary of the Company shall act as Secretary at
all meetings of the shareholders, but in the absence of the Secretary the
presiding officer may appoint any person to act as Secretary of the meeting.
Sec. 5. Voting. Except as otherwise provided by law or by the
Certificate of Incorporation, each shareholder entitled to vote at a meeting of
shareholders shall be entitled to one vote, in person or by proxy, for each
share having voting power held by him or her on the record date for such
meeting, as appears on the books of the Company.
Only the person in whose name shares stand on the books of the Company
at the time of closing of the transfer books for such meeting shall be entitled
to vote, in person or by proxy, the shares so standing in his or her name.
The Board of Directors shall have the power and authority to fix a day
not less than ten nor more than fifty days prior to the day of holding any
meeting of shareholders, as the day as of which shareholders entitled to notice
of and to vote at such meeting shall be determined; and all persons who are
holders of record of shares with voting rights on such day, and no others, shall
be entitled to notice of and to vote at such meeting.
Sec. 6. Inspectors of Election. The Board of Directors, in advance of
any shareholders' meeting, may appoint one or more inspectors to act at the
meeting or any adjournment thereof. If inspectors are not so appointed, the
person presiding at a shareholders' meeting may, and on the request of any
shareholder entitled to vote thereat shall, appoint one or more inspectors. In
case any person appointed fails to appear or act, the vacancy may be filled by
appointment made by the Board of Directors in advance of the meeting or at the
meeting by the person presiding thereat. Each inspector, before entering upon
the discharge of his or her duties, shall take and sign an oath faithfully to
execute the duties of inspector at such meeting with strict impartiality and
according to the best of his or her ability. Thereafter each inspector shall
have at such meeting all of the powers and duties provided by law.
Sec. 7. Business Conducted at Meetings. At an annual meeting of
shareholders, only such business may be conducted as shall have been properly
brought before the meeting. To be properly brought before an annual meeting
business must be (a) specified in the notice of meeting (including any
supplement thereto) given by or at the direction of the Board of Directors, (b)
otherwise properly brought before the meeting by or at the direction of the
Board of Directors, or (c) otherwise properly brought before the meeting by a
shareholder of the Company who was a shareholder of record at the time of giving
of notice provided for in this Section 7, who is entitled to vote at the meeting
and who complies with the notice procedures set forth in this Section 7. For
business to be properly brought before an annual meeting by a shareholder, the
shareholder must have given timely notice thereof in writing to the Secretary of
the Company. To be timely, a shareholder's notice must be delivered to or mailed
and received at the principal office of the Company not less than 60 days nor
more than 90 days prior to the meeting; provided, however, that in the event
that the date of the annual meeting is scheduled for a day other than the first
Wednesday in May in such year and less than 70 days' notice or prior public
announcement of the new date of the meeting is given or made to shareholders,
notice by the shareholder to be timely must be so received not later than the
close of business on the 10th day following the day on which such notice of the
new date of the annual meeting was mailed or such public announcement was made.
A shareholder's notice to the Secretary shall set forth as to each
matter the shareholder proposes to bring before the annual meeting (a) a brief
description of the business desired to be brought before the annual meeting and
the reasons for conducting such business at the annual meeting, (b) the name and
address of the shareholder proposing such business, as they appear on the
Company's books, and of the beneficial owner, if any, on whose behalf such
notice is being given, (c) the class and number of shares of the Company which
are owned beneficially and of record by such shareholder and by such beneficial
owner, and (d) any material interest in such business of such shareholder or of
such beneficial owner.
At a special meeting of shareholders, only such business may be
conducted as shall have been properly brought before the meeting. To be properly
brought before a special meeting, business must be related to the purpose or
purposes set forth in the notice of the meeting (including any supplement
thereto) given by or at the direction of the Board of Directors or the Chairman
of the Board.
Notwithstanding anything in the By-Laws to the contrary, no business
shall be conducted at a meeting of shareholders except in accordance with the
procedures set forth in this Section 7. The chairman of a meeting shall, if the
facts warrant, determine and declare to the meeting that business was not
properly brought before the meeting in accordance with the provisions of this
Section 7, and if the chairman should so determine, he or she shall declare to
the meeting that any such business not properly brought before the meeting shall
not be transacted. In addition to the provisions of this Section 7, a
shareholder shall also comply with all applicable requirements of the Exchange
Act and the rules and regulations thereunder with respect to the matters set
forth herein. Nothing in these By-Laws shall be deemed to affect any rights of
shareholders to request inclusion of proposals in the Company's proxy statement
pursuant to Rule 14a-8 under the Securities Exchange Act of 1934, as amended
from time to time (the "Exchange Act") and to put before such meeting any
proposals so included in the Company's proxy statement at his or her request.
Sec. 8. Nomination of Directors. Only persons who are nominated in
accordance with the procedures set forth in this Section 8 shall be eligible for
election as Directors at any meeting of shareholders held for the election of
Directors (an "Election Meeting"). Nominations of persons for election to the
Board of Directors of the Company may be made at an Election Meeting by or at
the direction of the Board of Directors or by a shareholder of the Company who
was a shareholder of record at the time of giving of notice provided for in this
Section 8, who is entitled to vote for the election of Directors at such
Election Meeting and who complies with the notice procedures set forth in this
Section 8. Such nominations, other than those made by or at the direction of the
Board of Directors, shall be made pursuant to timely notice in writing to the
Secretary of the Company. To be timely, a shareholder's notice must be delivered
to or mailed and received at the principal office of the Company not less than
60 days nor more than 90 days prior to such Election Meeting; provided, however,
that in the event the date of the Election Meeting is scheduled for a day other
than the first Wednesday in May and less than 70 days' notice or prior public
announcement of the date of such Election Meeting is given or made to
shareholders, notice by the shareholder to be timely must be so received not
later than the close of business on the 10th day following the day on which such
notice of the date of such Election Meeting was mailed or such public
announcement was made. Notwithstanding anything in the foregoing sentence to the
contrary, in the event that the number of Directors to be elected to the Board
of Directors of the Company at such Election Meeting is increased or there is a
vacancy to be filled at such Election Meeting in a class of Directors whose
terms do not expire at such Election Meeting and there is no public announcement
at least 70 days prior to such Election Meeting naming all of the nominees for
Director or specifying the size of the increased Board of Directors or the
number of Directors to be elected, a shareholder's notice required by this
Section 8 shall also be considered timely, but only with respect to nominees for
any positions created by such increase or vacancy, if it shall be delivered to
or mailed and received at the principal office of the Company not later than the
close of business on the 10th day following the day on which such public
announcement is first made by the Company.
Such shareholder's notice to the Secretary shall set forth (a) as to
each person whom the shareholder proposes to nominate for election or
re-election as a Director, (i) the name, age, business address and residence
address of such person, (ii) the principal occupation or employment of such
person, (iii) the class and number of shares of the Company which are owned
beneficially by such person and (iv) any other information concerning such
person that is required to be disclosed in connection with the solicitation of
proxies for election of directors, or is otherwise required, in each case
pursuant to Regulation 14A under the Exchange Act (including without limitation
such person's written consent to being named in the proxy statement as a nominee
and to serving as a Director if elected); and (b) as to the shareholder giving
the notice and the beneficial owner, if any, on whose behalf the nomination is
made, (i) the name and address of such shareholder, as they appear on the
Company's books, and of such beneficial owner and (ii) the class and number of
shares of the Company which are owned beneficially and of record by such
shareholder and by such beneficial owner. At the request of the Board of
Directors any person nominated by the Board of Directors for election as a
Director shall furnish to the Secretary of the Company that information required
to be set forth in a shareholder's notice of nomination which pertains to the
nominee.
No person shall be eligible for election as a Director of the Company
unless nominated in accordance with the procedures set forth in this Section 8.
In the event that a person is validly designated as a nominee in accordance with
the foregoing and shall thereafter become unable or unwilling to stand for
election to the Board of Directors, the Board of Directors or the shareholder
who proposed such nominee, as the case may be, may designate a substitute
nominee. The chairman of the meeting shall, if the facts warrant, determine and
declare to the meeting that a nomination was not made in accordance with the
provisions of this Section 8, and if the chairman should so determine, he or she
shall declare to the meeting that the defective nomination shall be disregarded.
In addition to the provisions of this Section 8, a shareholder shall also comply
with all applicable requirements of the Exchange Act and the rules and
regulations thereunder with respect to the matters set forth herein.
Sec. 9. Public Announcement. For purposes of this Article II, "public
announcement" shall mean disclosure in a communication sent by first class mail
to shareholders, in a press release reported by the Dow Jones News Service,
Reuters Information Services, Inc., Associated Press or comparable national news
service or in a document filed by the Company with the Securities and Exchange
Commission pursuant to Section 13, 14 or 15(d) of the Exchange Act.
ARTICLE III. DIRECTORS
Sec. 1. Number; Classification of Board; Newly Created Directorships
and Vacancies. The business of the Company shall be managed under the direction
of its Board of Directors, which shall consist of not less than nine nor more
than fifteen Directors, provided that whenever the holders of any one or more
series of Preferred Shares of the Company become entitled to elect one or more
Directors to the Board of Directors in accordance with any applicable provisions
of the Certificate of Incorporation, such maximum number of Directors shall be
increased automatically by the number of Directors such holders are so entitled
to elect. Such increase shall remain in effect until the right of such holders
to elect such Director or Directors shall cease and until the Director or
Directors elected by such holders shall no longer hold office. The exact number
of Directors within the foregoing minimum and maximum limitations shall be
determined from time to time by resolution adopted by the affirmative vote of a
majority of the entire Board.
Except as otherwise provided in any applicable provisions of the
Certificate of Incorporation relating to Preferred Shares of the Company, the
Directors shall be divided into three classes, designated Class I, Class II and
Class III. All classes shall be as nearly equal in number as possible. The terms
of office of the Directors initially classified shall be as follows: at the 1988
annual meeting of shareholders, Class I Directors shall be elected for a
one-year term expiring at the 1989 annual meeting of shareholders, Class II
Directors for a two-year term expiring at the 1990 annual meeting of
shareholders, and Class III Directors for a three-year term expiring at the 1991
annual meeting of shareholders. At each annual meeting of shareholders after the
1988 annual meeting, Directors so classified who are elected to replace those
whose terms expire at such annual meeting shall be elected to hold office until
the third succeeding annual meeting. Each Director so classified shall hold
office until the expiration of his term and until his successor has been elected
and qualified.
Except as otherwise provided in any applicable provisions of the
Certificate of Incorporation relating to Preferred Shares of the Company, (a)
newly created directorships resulting from an increase in the number of
Directors and vacancies occurring on the Board of Directors for any reason may
be filled by vote of the Directors (including a majority of Directors then in
office if less than a quorum exists), and (b) if the number of Directors is
changed, (i) any newly created directorships or any decrease in directorships
shall be apportioned by the Board among the classes so as to make all classes as
nearly equal as possible, and (ii) when the number of Directors is increased by
the Board and any newly created directorships are filled by the Board, there
shall be no classification of the additional Directors until the next annual
meeting of shareholders. Any Director elected by the Board to fill a newly
created directorship or a vacancy shall hold office until the next annual
meeting of shareholders and until his successor, classified in accordance with
these By-Laws, has been elected and qualified. No decrease in the number of
Directors constituting the Board shall shorten the term of any incumbent
Director.
Sec. 2. Quorum. One-third, but in any event not fewer than five (5)
members of the Board of Directors, shall constitute a quorum for transacting
business at all meetings. In the event of a quorum not being present, a lesser
number may adjourn the meeting to a time not more than twenty (20) days later.
Sec. 3. Place of Meetings. The Directors may hold their meetings either
within or without the State of New York.
Sec. 4. Meetings. Regular and special meetings of the Board of
Directors shall be held whenever called by the Chairman of the Board, any Vice
Chairman, the President, any Executive Vice President or Senior Vice President,
or any member of the Executive Committee of the Board and shall be held at such
time and place as the notice of the meeting shall specify. Notice of any such
meeting shall be given to each Director (a) personally (either orally or in
writing) not less than 12 hours in advance of such meeting, (b) by telex or
similar method of communication dispatched to his usual place of business not
less than 24 hours in advance of such meeting, or (c) by mail or telegram
dispatched to his address on file at the Company for such purpose not less than
two days in advance of such meeting. Such notice shall be given by the Secretary
or, if the Secretary is not available, by the individual calling the meeting
and, in the case of special meetings, shall also specify the object of the
meeting. At any such meeting held without notice at which every member of the
Board shall be present or shall waive notice in writing before or after the
meeting, any business may be transacted which might have been transacted if
notice of the meeting had been duly given.
Regular meetings may also be held at such times and places as the Board
may designate from time to time, and no notice shall be required for any such
regular meeting when held as so designated.
Any one or more members of the Board may participate in a meeting of
the Board by means of a conference telephone or similar communications equipment
allowing all persons participating in the meeting to hear each other at the same
time. Participation by such means shall constitute presence in person at the
meeting.
Sec. 5. Removal. Any officer elected or appointed by the Board of
Directors, may be removed at any time by the affirmative vote of a majority of
the whole Board.
Sec. 6. Compensation. Each Director of the Company who is neither an
officer or employee of the Company or of a subsidiary of the Company nor a
Chairman of a Committee of the Board of Directors of the Company shall receive
an annual retainer of Twenty-Five Thousand Dollars ($25,000). Each Director of
the Company who is not an officer or employee of the Company or of a subsidiary
of the Company and who is a Chairman of a Committee of the Board of Directors of
the Company shall receive an annual retainer of Twenty-Eight Thousand Dollars
($28,000). In addition, each Director of the Company who is not an officer or
employee of the Company or of a subsidiary of the Company shall receive: (i) a
fee of One Thousand Dollars ($1,000) per meeting for attendance at any regular
or special meeting of the Board or as a member or by invitation at any regular
or special meeting of any Committee of the Board and (ii) a fee of One Thousand
Dollars ($1,000) for each day (prorated for part of a day) that such Director
renders service to the Company in excess of that required by such Director's
usual responsibilities either as a member of the Board of Directors of the
Company or as a member of a Committee thereof.
Sec. 7. Indemnification--Third Party and Derivative Actions.
(a) The Company shall indemnify any person made, or threatened
to be made, a party to an action or proceeding other than one by or in the right
of the Company to procure a judgment in its favor, whether civil or criminal,
including an action by or in the right of any other corporation of any type or
kind, domestic or foreign, or any partnership, joint venture, trust, employee
benefit plan or other enterprise, which any Director or officer of the Company
served in any capacity at the request of the Company, by reason of the fact that
he, his testator or intestate, is or was a Director or officer of the Company,
or is or was serving such other corporation, partnership, joint venture, trust,
employee benefit plan or other enterprise in any capacity, against judgments,
fines, amounts paid in settlement and expenses (including attorneys' fees)
incurred in connection with such action or proceeding, or any appeal therein,
provided that no indemnification may be made to or on behalf of such person if
(i) his acts were committed in bad faith or were the result of his active and
deliberate dishonesty and were material to such action or proceeding or (ii) he
personally gained in fact a financial profit or other advantage to which he was
not legally entitled.
(b) The Company shall indemnify any person made, or threatened
to be made, a party to an action by or in the right of the Company to procure a
judgment in its favor by reason of the fact that he, his testator or intestate,
is or was a Director or officer of the Company, or is or was serving at the
request of the Company as a Director or officer of any other corporation of any
type or kind, domestic or foreign, or of any partnership, joint venture, trust,
employee benefit plan or other enterprise, against judgments, amounts paid in
settlement and expenses (including attorneys' fees) incurred in connection with
such action, or any appeal therein, provided that no indemnification may be made
to or on behalf of such person if (i) his acts were committed in bad faith or
were the result of his active and deliberate dishonesty and were material to
such action or (ii) he personally gained in fact a financial profit or other
advantage to which he was not legally entitled.
(c) For the purpose of this Section 7, the Company shall be
deemed to have requested a person to serve an employee benefit plan where the
performance by such person of his duties to the Company also imposes duties on,
or otherwise involves services by, such person to the plan or participants or
beneficiaries of the plan; excise taxes assessed on a person with respect to an
employee benefit plan pursuant to applicable law shall be considered fines.
(d) The termination of any civil or criminal action or
proceeding by judgment, settlement, conviction or upon a plea of nolo
contendere, or its equivalent, shall not in itself create a presumption that any
such Director or officer has not met the standard of conduct set forth in this
Section 7. However, no Director or officer shall be entitled to indemnification
under this Section 7 if a judgment or other final adjudication adverse to the
Director or officer establishes (i) that his acts were committed in bad faith or
were the result of active and deliberate dishonesty and were material to the
cause of action so adjudicated, or (ii) that he personally gained in fact a
financial profit or other advantage to which he was not legally entitled.
Sec. 8. Payment of Indemnification; Repayment.
(a) A person who has been successful, on the merits or
otherwise, in the defense of a civil or criminal action or proceeding of the
character described in Section 7 of this Article shall be entitled to
indemnification as authorized in such Section.
(b) Except as provided in Section 8(a), any indemnification
under Section 7 of this Article, unless ordered by a court, shall be made by the
Company only if authorized in the specific case:
(1) by the Board of Directors acting by a quorum
consisting of Directors who are not parties to the action or proceeding giving
rise to the indemnity claim upon a finding that the Director or officer has met
the standard of conduct set forth in Section 7 of this Article; or
(2) if a quorum under the foregoing clause (1) is not
obtainable or, even if obtainable, a quorum of disinterested Directors so
directs:
(i) by the Board of Directors upon the
opinion in writing of independent legal counsel (i.e., a reputable lawyer or law
firm not under regular retainer from the Company or any subsidiary corporation)
that indemnification is proper in the circumstances because the standard of
conduct set forth in Section 7 of this Article has been met by such Director or
officer, or
(ii) by the holders of the Common Shares of
the Company upon a finding that the Director or officer has met such standard of
conduct.
(c) Expenses incurred by a Director or officer in defending a
civil or criminal action or proceeding shall be paid by the Company in advance
of the final disposition of such action or proceeding upon receipt of an
undertaking by or on behalf of such Director or officer to repay such amount in
case he is ultimately found, in accordance with this Article, not to be entitled
to indemnification or, where indemnity is granted, to the extent the expenses so
paid exceed the indemnification to which he is entitled.
(d) Any indemnification of a Director or officer of the
Company under Section 7 of this Article, or advance of expenses under Section
8(c) of this Article, shall be made promptly, and in any event within 60 days,
upon the written request of the Director or officer.
Sec. 9. Enforcement; Defenses. The right to indemnification or advances
as granted by this Article shall be enforceable by the Director or officer in
any court of competent jurisdiction if the Company denies such request, in whole
or in part, or if no disposition thereof is made within 60 days. Such person's
expenses incurred in connection with successfully establishing his right to
indemnification, in whole or in part, in any such action shall also be
indemnified by the Company. It shall be a defense to any such action (other than
an action brought to enforce a claim for the advance of expenses under Section
8(c) of this Article where the required undertaking, if any, has been received
by the Company) that the claimant has not met the standard of conduct set forth
in Section 7 of this Article, but the burden of proving such defense shall be on
the Company. Neither the failure of the Company (including its Board of
Directors, its independent legal counsel, and the holders of its Common Shares),
to have made a determination that indemnification of the claimant is proper in
the circumstances nor the fact that there has been an actual determination by
the Company (including its Board of Directors, its independent legal counsel,
and the holders of its Common Shares) that indemnification of the claimant is
not proper in the circumstances, shall be a defense to the action or create a
presumption that the claimant is not entitled to indemnification.
Sec. 10. Contract; Savings Clause; Preservation of Other Rights.
(a) The foregoing indemnification provisions shall be deemed
to be a contract between the Company and each Director and officer who serves in
such capacity at any time while these provisions as well as the relevant
provisions of the New York Business Corporation Law are in effect and any repeal
or modification thereof shall not affect any right or obligation then existing
with respect to any state of facts then or previously existing or any action or
proceeding previously or thereafter brought or threatened based in whole or in
part upon any such state of facts. Such a contract right may not be modified
retroactively without the consent of such Director or officer.
(b) If this Article or any portion hereof shall be invalidated
on any ground by any court of competent jurisdiction, then the Company shall
nevertheless indemnify each Director or officer of the Company against
judgments, fines, amounts paid in settlement and expenses (including attorneys'
fees) incurred in connection with any actual or threatened action or proceeding,
whether civil or criminal, including an actual or threatened action by or in the
right of the Company, or any appeal therein, to the full extent permitted by any
applicable portion of this Article that shall not have been invalidated and to
the full extent permitted by applicable law.
(c) The indemnification provided by this Article shall not be
deemed exclusive of any other rights to which those indemnified may be entitled
under any by-law, agreement, vote of shareholders or Directors or otherwise,
both as to action in his official capacity and as to action in another capacity
while holding such office, and shall continue as to a person who has ceased to
be a Director or officer and shall inure to the benefit of the heirs, executors
and administrators of such a person. The Company is hereby authorized to provide
further indemnification if it deems it advisable by resolution of shareholders
or Directors or by agreement.
Sec. 11. Indemnification of Persons Not Directors or Officers of the
Company. The Company may, by resolution adopted by the Board of Directors of the
Company, indemnify any person not a Director or officer of the Company, who is
made, or threatened to be made, a party to an action or proceeding, whether
civil or criminal, by reason of the fact that he, his testator or intestate, is
or was an employee or other agent of the Company, against judgments, fines,
amounts paid in settlement and expenses (including attorneys' fees) incurred in
connection with such action or proceeding, or any appeal therein, provided that
no indemnification may be made to or on behalf of such person if (i) his acts
were committed in bad faith or were the result of active and deliberate
dishonesty and were material to such action or proceeding, or (ii) he personally
gained in fact a financial profit or other advantage to which he was not legally
entitled.
ARTICLE IV. EXECUTIVE AND OTHER COMMITTEES
Sec. 1. The Board of Directors shall, by an affirmative vote of a
majority of the whole Board, appoint from the Directors an Executive Committee
not more than nine and not less than three, of which one-third (but not less
than two) shall constitute a quorum. Should it be impracticable at any time, due
to absence or illness of members or other cause, to obtain a quorum of the
members so appointed for any desired meeting, the Secretary, or, if the
Secretary is not available, the member calling the meeting, may call upon any
other Director or Directors, not members of such Executive Committee but who
have been designated by the Board as alternate members of the Executive
Committee, to make up a quorum for that particular meeting, which other Director
or Directors shall for the time being be members of said Executive Committee,
and the acts and proceedings of the Committee as so constituted for such meeting
shall have the same force and effect as the acts and proceedings of meetings
where a quorum of the regular committee is in attendance.
The Board of Directors may from among their number also, by a similar
vote, appoint any other committees.
The Board of Directors shall fill vacancies in the Executive Committee
by election from Directors; and at all times it shall be the duty of the Board
of Directors to keep the membership of the Executive Committee up to the
required number.
Any member of the Executive Committee who shall cease to be a Director
shall ipso facto cease to be a member of the Committee.
All action by the Executive Committee, or by other committees appointed
by the Board of Directors, shall be reported to said Board at its meeting next
succeeding such action, and, except to the extent stated in the second sentence
of the first paragraph of Section 2 of this Article, shall be subject to
revision, alteration, or approval by the Board of Directors.
The Executive and other committees shall each fix its own rules of
procedure and arrange its own place of meeting; but in every case (except in the
case of the Executive Committee) a majority of such committee shall be necessary
to constitute a quorum, and in every case (except in the case of the Executive
Committee) the affirmative vote of a majority of the members of each of such
committees shall be necessary for its adoption of any resolution. Any one or
more members of the Executive or any other committee may participate in a
meeting of such committee by means of a conference telephone or similar
communications equipment allowing all persons participating in the meeting to
hear each other at the same time. Participation by such means shall constitute
presence in person at the meeting.
Meetings of the Executive Committee shall be held whenever called by
the Chairman of the Board, any Vice Chairman, the President, any Executive Vice
President or Senior Vice President or any member of that Committee, and shall be
held at such time and place as the notice of the meeting shall specify. Notice
of any such meeting shall be given to each member of the Committee (a)
personally (either orally or in writing) not less than 12 hours in advance of
such meeting, (b) by telex or similar method of communication dispatched to his
usual place of business not less than 24 hours in advance of such meeting, or
(c) by mail or telegram dispatched to his address on file at the Company for
such purpose not less than two days in advance of such meeting. Such notice
shall be given by the Secretary or, if the Secretary is not available, by the
individual calling the meeting and shall also specify the object of the meeting.
The Executive Committee shall keep regular minutes and cause them to be
recorded in a book to be kept in the principal office of the Company for that
purpose.
Sec. 2. Powers of Committees. The Executive Committee shall, whenever
the Board of Directors is not in session, direct the management of the affairs
of the Company in all cases in which specific directions to the contrary shall
not have been given, or specific action of the Board of Directors is required by
law. Notwithstanding anything to the contrary stated in the fifth paragraph of
Section 1 of this Article, the rights of third persons acquired in reliance on
an Executive Committee resolution prior to receiving notice of action by the
Board of Directors shall not be prejudiced by action by the Board of Directors.
Other committees appointed by the Board of Directors shall have such
powers as the Board may delegate by resolution.
Sec. 3. Compensation. The members of the Executive Committee and the
members of any other committee appointed by the Board of Directors shall receive
such compensation for their services as from time to time shall be fixed by the
Board of Directors.
ARTICLE V. OFFICERS AND THEIR DUTIES
Sec. 1. Officers. The officers of the Company shall be: Chairman of the
Board of Directors, President, Treasurer, Secretary, and Controller, and such
Vice Chairmen, such Vice Presidents (one or more of whom may be designated
Executive Vice President or Senior Vice President), and such Assistant Vice
Presidents, Assistant Treasurers, Assistant Secretaries, and Assistant
Controllers as the Board of Directors in its discretion may elect or appoint. No
officer other than the Chairman of the Board need be a member of the Board of
Directors. Any number of offices may be held by the same person, except that the
same person shall not be (i) Treasurer and Controller or (ii) Chairman of the
Board or President and Secretary.
Officers shall be elected annually at the first meeting of the Board of
Directors following the annual meeting of shareholders, subject to the power of
the Board of Directors to fill vacancies at any time. All officers shall serve
at the pleasure of the Board of Directors and may be removed as provided in
Article III, Section 5 of these By-Laws.
Sec. 2. Chairman of the Board. The Chairman of the Board of Directors
shall be the chief executive officer of the Company and shall be responsible to
the Board of Directors for the administration and operations of the Company. He
shall preside at all meetings of the Board of Directors and at all meetings of
shareholders. By virtue of his office he shall be a member of the Executive
Committee of the Board of Directors and shall preside at meetings of the
Executive Committee. He shall have such other powers and perform such other
duties as from time to time may be assigned to him by, and shall be responsible
solely to, the Board of Directors. He may sign, with the Treasurer, all
promissory notes of the Company and any guarantees of the Company in respect of
borrowed money, and, with the Secretary when the corporate seal is to be
affixed, all share certificates, bonds, mortgages and other contracts of the
Company.
Sec. 2-A. Vice Chairmen. Each Vice Chairman shall have such powers and
perform such duties as from time to time may be assigned to him by the Board of
Directors or the Chairman of the Board. Any Vice Chairman may sign, with the
Treasurer, all promissory notes of the Company and any guarantees of the Company
in respect of borrowed money, and, with the Secretary when the corporate seal is
to be affixed, all share certificates, bonds, mortgages, and other contracts of
the Company.
Sec. 3. President. The President shall have such powers and perform
such duties as from time to time may be assigned to him by the Board of
Directors or by the Chairman of the Board. He may sign, with the Treasurer, all
promissory notes of the Company and any guarantees of the Company in respect of
borrowed money, and, with the Secretary when the corporate seal is to be
affixed, all share certificates, bonds, mortgages, and other contracts of the
Company.
Sec. 3-A. Vice Presidents. Each Vice President shall have such powers
and perform such duties as from time to time may be assigned to him by the Board
of Directors, the Chairman of the Board, any Vice Chairman, or the President.
Any Vice President may sign, with the Treasurer, all promissory notes of the
Company and any guarantees of the Company in respect of borrowed money, and,
with the Secretary when the corporate seal is to be affixed, all share
certificates, bonds, mortgages, and other contracts of the Company.
Sec. 4. Assistant Vice Presidents. The Board of Directors may elect or
appoint one or more Assistant Vice Presidents, each of whom shall have such
powers and perform such duties as from time to time may be assigned to him by
the Board of Directors, the Chairman of the Board, any Vice Chairman, the
President, or any Vice President.
Sec. 5. Secretary. The Secretary shall keep a record of all proceedings
of the Board of Directors, and of all meetings of the shareholders, and of the
Executive Committee and of all other committees, in books provided for that
purpose, and he shall attend to giving and serving all notices of the Company.
The Secretary shall keep in safe custody the seal of the Company and he shall
affix such seal on all share certificates, bonds, mortgages, and other contracts
of the Company executed under such seal. He shall have charge of the records of
shareholders of the Company, including transfer books, and share ledgers, and
such other books and papers as the Board of Directors shall direct, and in
general shall perform all the duties incident to the office of Secretary.
Sec. 6. Assistant Secretaries. The Board of Directors may appoint one
or more Assistant Secretaries, who shall have power to sign, with the Chairman
of the Board, any Vice Chairman, the President, or any Vice President, share
certificates of the Company. In the absence of the Secretary, the Assistant
Secretaries shall be vested with the powers of, and any one of them may perform
the duties of, the Secretary. Each Assistant Secretary shall perform such other
duties as from time to time may be assigned to him by the Board of Directors,
the Chairman of the Board, any Vice Chairman, the President, or any Vice
President.
Sec. 7. Treasurer. The Treasurer shall have in his charge all the funds
and securities of the Company. When necessary or proper, he, or such other
officer or officers of the Company as may be so duly authorized by the Board of
Directors, shall endorse on behalf of the Company for collection checks, notes
or other obligations and shall deposit the same to the credit of the Company in
such bank or banks or depositories as the Board of Directors may designate or as
may be designated by persons authorized by the Board of Directors to make such
designations. He, or such other officers or employees of the Company or any of
its subsidiaries, acting individually unless otherwise provided, as may from
time to time be designated by the Board of Directors or be designated in writing
by any officer or officers of the Company duly authorized by the Board of
Directors to make such designations, shall sign all receipts and vouchers for
payments made to the Company, and shall sign all checks, drafts or bills of
exchange, provided that the Board of Directors from time to time may designate
other persons as authorized signatories of the Company or authorize other
persons to make such designations on behalf of the Company. The Treasurer
jointly with the Chairman of the Board, any Vice Chairman, the President, or any
Vice President shall sign all promissory notes of the Company and any guarantees
of the Company in respect of borrowed money, and shall pay out and dispose of
the same under the direction of the Board; he shall keep a complete set of
books, showing the financial transactions of the Company, and shall exhibit his
books to any Director upon application at the office of the Company, during
business hours; he shall make such reports as the Board of Directors or the
Executive Committee may from time to time request; and he shall perform all acts
incidental to the office of Treasurer, subject, nevertheless, to the control of
the Board of Directors.
He shall give such bonds for the faithful discharge of his duties as
Treasurer as the Board of Directors may require.
Sec. 8. Assistant Treasurers. The Board of Directors may appoint one or
more Assistant Treasurers. In the absence of the Treasurer, the Assistant
Treasurers shall be vested with the powers of, and any one of them may perform
the duties of, the Treasurer. Each Assistant Treasurer shall perform such other
duties as from time to time may be assigned to him by the Board of Directors,
the Chairman of the Board, any Vice Chairman, the President, or any Vice
President.
Sec. 9. Controller. The Controller shall have supervision and direction
of all accounts of the Company, and shall see that the system of accounts is
duly enforced and maintained.
There shall be kept in his office a general set of books containing a
complete set of all the business transactions of the Company, and he shall, as
often as necessary, make an examination of the accounts of any officer, agent or
employee entrusted with the handling or care of money of the Company.
It shall be the duty of the Controller to know that all money belonging
to the Company, collected from any source by any officer, agent or employee, is
properly accounted for and promptly paid into the treasury, and that all
accounts of the Company are properly and promptly settled.
It shall be the duty of the Controller to know that all bonds required
of officers, agents and employees for the faithful performance of their duties
are given. Such bonds shall be transmitted to the Controller for safe custody
and shall be released only upon a complete and satisfactory settlement of the
accounts covered by them, unless otherwise ordered by the Board.
Sec. 10. Additional Officers; Division Officers. In addition to the
above officers, the Board of Directors may also appoint one or more general
counsel and one or more auditors and such other officers as they may deem wise
and advisable for the best interests of the Company, who shall perform such
duties as from time to time may be assigned to them by the Board of Directors.
If the Board of Directors establishes divisions of the Corporation, the Board
may also establish such division offices and appoint such division officers as
the Board deems appropriate. Such division officers shall have such powers and
perform such duties as from time to time may be assigned to them by the Board of
Directors. The Board of Directors shall fix salaries for all officers of the
Company, or may delegate, to any committee of the Board or to the Chairman of
the Board, the power to fix salaries of officers of the Company in cases where
the Board deems it appropriate to so delegate.
Sec. 11. Voting upon Stocks. Unless otherwise ordered by the Board of
Directors, the Chairman of the Board, any Vice Chairman, the President or any
Vice President shall have full power and authority on behalf of the Company to
attend, act and vote, or in the name of the Company to execute proxies
appointing any person or persons to attend, act and vote on behalf of the
Company, at any meeting of stockholders of any corporation in which the Company
may hold stock, and at any such meeting such officer or person or persons
appointed in any such proxy, as the case may be, shall possess and may exercise
on behalf of the Company any and all rights, powers and privileges incident to
the ownership of such stock. The Board of Directors may by resolution from time
to time confer like powers upon any other person or persons.
Sec. 12. Sales of Stock. Neither the corporation of Phelps Dodge
Corporation nor any subsidiary company by it controlled, shall speculate in the
stock either of Phelps Dodge Corporation or of any subsidiary company, or shall
buy or sell same except in the regular course of legitimate business of such
company or for the purpose of retirement and this provision shall be unalterable
save by the vote of the holders of a majority of the stock of the company voting
thereon at a meeting called, as provided by these By-Laws.
ARTICLE VI. SHARE CERTIFICATES AND TRANSFERS
Sec. 1. Certificates for Shares. The Board of Directors shall prepare,
in form according to law, and approve, certificates evidencing shares of the
Company.
No certificate shall be valid unless it is signed by the Chairman of
the Board, any Vice Chairman, the President or any Vice President; and also by
the Secretary or an Assistant Secretary. The signatures of the officers upon a
certificate may be facsimiles if the certificate is countersigned by a transfer
agent or registered by a registrar other than the Company itself or its
employee.
Sec. 2. Transfer of Shares. Shares of the Company shall be transferred
only on the books of the Company by the holder thereof in person or by his or
her attorney duly authorized thereto in writing, and by cancellation and
surrender of certificates for a like number of shares.
ARTICLE VII. AMENDMENTS
These By-Laws, with the exception of Section 12 of Article V, may be
amended or repealed by a vote of a majority of all the Directors at any regular
or special meeting of the Board.
ARTICLE VIII.
The Company expressly elects not to be governed by the provisions
currently designated as Article 2, Chapter 23, Title 10 of the Arizona Revised
Statutes.
Exhibit 10.5
Deferred Compensation Plan
for the Directors of
Phelps Dodge Corporation
Amended and Restated as of December 4, 1996
-------------------------------------------
1. Eligibility
- --------------------
Each member of the Board of Directors of Phelps Dodge
Corporation (the "Corporation") who is not also an officer or employee of the
Corporation (a "Director") is eligible to participate in the Deferred
Compensation Plan for the Directors of Phelps Dodge Corporation (the "Plan").
The Secretary of the Corporation shall provide a copy of the Plan to each
Director together with a form of letter which may be used, if the Director so
elects, to notify the Corporation of his or her election to participate in the
Plan.
2. Participation
- ----------------------
(a) Deferral Election. Prior to December 31st of any year, a
Director may elect to defer receipt of all or any part of his or her annual
retainer and/or meeting fees (the amount elected to be deferred being herein
referred to as "Fees") for the calendar year following the year in which such
election is made, and to have such amounts credited, in whole or in part, to a
memorandum account credited with a fixed annual return (the "Interest Account")
and/or a memorandum account deemed to be invested in notional Common Shares of
the Corporation (the "Stock Account"). Any person who shall become a Director
during any calendar year may elect, not later than the 30th day after his or her
term begins, to defer payment of all or any part of his or her annual retainer
and/or meeting fees payable for the portion of such calendar year following such
election.
(b) Form and Duration of Deferral Election. A deferral
election shall be made by written notice filed with the Secretary of the
Corporation. Such election shall continue in effect (including with respect to
compensation payable for subsequent calendar years) unless and until the
Director revokes or modifies such election by written notice filed with the
Secretary of the Corporation. Any such revocation or modification of a deferral
election shall become effective as of the end of the calendar year in which such
notice is given and only with respect to compensation payable for services as a
Director thereafter. Amounts credited to the Director's Interest Account and/or
Stock Account (collectively, the "Accounts") prior to the effective date of any
such revocation or modification of a deferral election shall not be affected by
such revocation or modification and shall be distributed only in accordance with
the otherwise applicable terms of the Plan.
(c) Renewal. A Director who has revoked an election to
participate in the Plan may file a new election to defer fees payable for
services to be rendered in the calendar year following the year in which such
election is filed.
3. Director's Accounts
- -----------------------------
(a) Establishment of Accounts. The Corporation shall maintain
an Interest Account and a Stock Account for each Director who has elected to
participate in the Plan, and shall make additions to and subtractions from such
Accounts as provided in this Plan.
(b) Interest Account. Fees allocated to the Interest Account
pursuant to this Section 3 shall be credited to the Interest Account as of the
date such Fees would have been paid to the Director. In the case of a transfer
of any amount from the Stock Account to the Interest Account, the amount to be
credited to the Interest Account shall be determined pursuant to Section 4(e)
below. Any amounts credited to the Interest Account shall be credited with
interest annually on December 31 of each calendar year, except that in the event
a Director dies while the balance in such Director's Interest Account is a
positive number, interest shall be credited on such balance as of the end of the
calendar month in which the Director dies. The amount to be credited as interest
pursuant to the preceding sentence with respect to amounts credited to the
Interest Account on January 1 of the then current calendar year shall be equal
to the product of such amounts and the Applicable Interest Rate (as defined
below). With respect to each amount credited to the Interest Account after
January 1 of the then current calendar year, the amount to be credited as
interest pursuant to this Section 3(b) shall be equal to (i) the product of such
amount and the Applicable Interest Rate times (ii) a fraction, the numerator of
which is the number of days in such calendar year during which such amount is
credited to the Interest Account and the denominator of which is 365.
Effective January 1, 1993, the Applicable Interest Rate shall
mean the percentage equal to the prime rate of interest in effect at The Chase
Manhattan Bank (or any successor thereto) on the first business day of the then
current calendar year (the "Annual Rate"), except that, in the case of an
interest calculation being made as of the end of the month in which a Director
dies, the Applicable Interest Rate shall equal the product of (i) the Annual
Rate and (ii) a fraction, the numerator of which is the number of full calendar
months during such year which have been completed on or prior to such date and
the denominator of which is 12. (Prior to January 1, 1993, interest shall be
calculated and credited as provided in the Plan as previously in effect.)
(c) Stock Account. Any Fees allocated to the Stock Account
pursuant to this Section 3 shall be deemed to be invested in a number of
notional Common Shares of the Corporation (the "Units") equal to the quotient of
(i) the dollar amount of such Fees divided by (ii) the Market Value Per Share
(as defined below) on the date the Fees then being allocated to the Stock
Account would otherwise have been paid to the Director. In the case of a
transfer of any amount from the Interest Account to the Stock Account, the
amount being transferred shall be deemed to be invested in a number of Units
equal to the quotient of (i) the dollar amount of such transfer divided by (ii)
the Market Value Per Share on the effective date of such transfer. Fractional
Units shall be credited, but shall be rounded to the nearest hundredth
percentile, with amounts equal to or greater than .005 rounded up and amounts
less than .005 rounded down.
The Market Value Per Share on any date shall mean the average
of the high and low prices per share for a Common Share of the Corporation as
reported on the Consolidated Tape of the New York Stock Exchange on such date.
If such date is not a business day or if no sale occurs on such date, Market
Value Per Share shall be determined, in the manner described above, as of the
first preceding business day on which a sale occurs.
Whenever a dividend other than a dividend payable in the form
of the Corporation's Common Shares is declared with respect to the Corporation's
Common Shares, the number of Units in the Director's Stock Account shall be
increased by the number of Units determined by dividing (i) the product of (A)
the number of Units in the Director's Stock Account on the related dividend
record date and (B) the amount of any cash dividend declared by the Corporation
on a Common Share (or, in the case of any dividend distributable in property
other than Common Shares, the per share value of such dividend, as determined by
the Corporation for purposes of income tax reporting) by (ii) the Market Value
Per Share on the related dividend payment date. In the case of any dividend
declared on the Corporation's Common Shares which is payable in Common Shares,
the Director's Stock Account shall be increased by the number of Units equal to
the product of (i) the number of Units credited to the Director's Stock Account
on the related dividend record date and (ii) the number of shares of Common
Shares (including any fraction thereof) distributable as a dividend on a Common
Share.
In the event of any change in the number or kind of
outstanding Common Shares by reason of any recapitalization, reorganization,
merger, consolidation, stock split or any similar change affecting the Common
Shares, other than a stock dividend as provided above, the Board of Directors
shall make an appropriate adjustment in the number of Units credited to the
Director's Stock Account.
(d) Investment Elections for Deferred Fees. At the time a
Director elects to defer Fees pursuant to Section 2(a), the Director shall
designate in writing the portion of such Director's Fees, stated as a whole
percentage, to be credited to the Interest Account and the portion to be
credited to the Stock Account. Any Fees to be credited to either Account shall
be rounded to the nearest whole cent, with amounts equal to or greater than
$.005 rounded up and amounts below $.005 rounded down. If a Director fails to
notify the Secretary as to how to allocate the Fees between the two Accounts,
100% of such Fees shall be credited to the Interest Account. By written notice
to the Secretary of the Corporation delivered not later than the last day of any
calendar quarter, a Director may change the manner in which Fees payable with
respect to services to be rendered after the end of such calendar quarter are
allocated among the Accounts.
(e) Transfers between Accounts. At any time, and from time to
time, a Director may elect to make transfers between Accounts (with respect to
all or a portion of his or her existing Account balances) by written notice to
the Secretary of the Corporation. Any such transfer shall take effect as of the
date such notice is received.
4. Distribution from Accounts
- ------------------------------
(a) Form of Distribution Election. At the time a Director
makes a deferral election pursuant to Section 2(a), the Director shall also file
with the Secretary of the Corporation a written election (a "Distribution
Election") with respect to (i) the timing and manner of distribution of the
aggregate amount, if any, credited to the Interest Account and the value of any
Units to be credited to the Stock Account and (ii) the form of the distribution
from the Stock Account. A Distribution Election shall specify that a
distribution from the Director's Accounts shall:
(A) commence on the first business day of any calendar year
following the calendar year in which such Fees are deferred,
but not later than the calendar year of the electing Director's
75th birthday;
(B) be in one lump sum payment or in such number of annual
installments (not to exceed ten) as the Director may designate;
and
(C) with respect to the portion of the distribution to be made from
the Stock Account, be payable in cash or in Common Shares of
the Corporation.
(b) Amendment of Distribution Election. A Director may at any
time, and from time to time, change the Distribution Election applicable to his
or her Accounts. Notwithstanding the foregoing, no election to change the method
and/or timing of any distribution with respect to the Director's Accounts shall
be effective unless (i) it is made in writing and received by the Secretary of
the Corporation prior to the time at which the Director ceases to be a Director
of the Corporation and (ii) at least one full calendar year elapses between
(A) the date as of which such election is so filed and
(B) (I) the date as of which a distribution would otherwise
have commenced and
(II) the date as which such distribution will commence
under such election.
Such timing restrictions shall not apply to a Director's election to change the
form of payment with respect to the portion of the distribution from his or her
Stock Account.
(c) Payment of Plan Distributions. Any distribution hereunder,
whether in the form of a lump sum payment or installments, shall commence in
accordance with the Distribution Election made by the Director in accordance
with Section 4(a) or 4(b). If a Director fails to specify a commencement date
for a distribution in accordance with Section 4(a) or 4(b), such distribution
shall commence on the first business day of the calendar year immediately
following the year in which the Director ceases to be a Director of the
Corporation. If a Director fails to specify in accordance with Section 4(a) or
4(b) that a distribution shall be made in a lump sum payment or a number of
installments, such distribution shall be made in a lump sum payment. If a
Director fails to specify, in accordance with Section 4(a) or 4(b), the form of
payment for the portion of the distribution from the Stock Account, such portion
shall be payable in cash. In the case of any distribution being made in annual
installments, each installment after the first installment shall be paid on the
first business day of each calendar year following the year in which such first
installment is paid until the entire amount subject to such installment
Distribution Election shall have been paid.
(d) Valuation of Units on Transfer or Distribution. Any
transfer or cash distribution from the Director's Stock Account, whether to the
Interest Account or to the Director or his or her beneficiary and whether part
of a lump sum distribution or an installment payment, shall be determined by
multiplying the number of Units then subject to distribution by the Market Value
Per Share on the date prior to the date as of which distribution is to be made.
In the event of a distribution from the Director's Stock Account to be paid in
Common Shares, the number of Common Shares payable shall be equal to the number
of whole Units subject to such distribution. Any fractional Units will be
settled in cash based on the Market Value Per Share on the date prior to the
date as of which distribution is to be made.
(e) Interest Account Installment Payments. Where a Director
receives the balance of his or her Accounts in annual installments, the amount
of each installment from the Interest Account shall be equal to the product of
(i) the balance credited to such Interest Account on the date of such payment
and (ii) a fraction, the numerator of which is one (1) and the denominator of
which is the total number of installments remaining to be paid at that time.
(f) Stock Account Installment Payments. Where a Director
receives the balance of his or her Accounts in annual installments, the number
of Units subject to such distribution shall be equal to the product of (i) the
number of Units in the Stock Account on the date of such distribution and (ii) a
fraction, the numerator of which is one (1) and the denominator of which is the
total number of installments remaining to be paid at that time.
5. Distribution on Death
- -------------------------
If a Director shall die before payment of all amounts credited
to the Director's Accounts has been completed, the total unpaid balance then
credited to such Director's Accounts shall be paid to the Director's designated
beneficiaries or estate in a single lump sum payment in cash within 30 days
after the Secretary of the Corporation receives notice of the Director's death.
6. Designation of a Beneficiary
- --------------------------------
A Director may designate a beneficiary or beneficiaries (which
may be an entity other than a natural person) to receive any payments to be made
upon the Director's death pursuant to Section 5. At any time, and from time to
time, any such designation may be changed or canceled by the Director without
the consent of any beneficiary. Any such designation, change or cancellation
must be made by written notice filed with the Secretary of the Corporation. If a
Director designates more than one beneficiary, any payments to such
beneficiaries made pursuant to Section 5 shall be made in equal shares unless
the Director has designated otherwise, in which case the payments shall be made
in the shares designated by the Director. If no beneficiary has been named by a
Director, payment shall be made to the Director's estate.
7. Amendment and Termination
- -----------------------------
The Board of Directors may at any time amend or terminate the
Plan; provided no such amendment or termination shall impair the rights of a
Director with respect to amounts then credited to his Accounts under the Plan.
8. Miscellaneous
- -----------------
(a) Unfunded Plan. The Corporation shall not be obligated to
fund its liabilities under the Plan, the separate memorandum Accounts
established for each Director electing deferment shall not constitute trusts,
and a Director shall have no claim against the Corporation or its assets other
than as an unsecured general creditor.
(b) No Rights as Shareholder. A Director shall have no rights
as a shareholder of the Corporation with respect to any Units credited to the
Stock Account pursuant to the Plan unless and until Common Shares are delivered
pursuant to Section 4 above.
(c) Nonalienation. The right of a Director to receive a
distribution of the value of such Director's Accounts payable pursuant to the
Plan shall not be subject to assignment or alienation.
Exhibit 10.10
Phelps Dodge Corporation
1997 Directors Stock Unit Plan
------------------------------
Section 1. Purpose
- -------------------
The Plan is intended to attract, retain and motivate the best
qualified directors for the benefit of the Corporation and its shareholders and
to provide such directors an economic interest in Common Shares (the "Common
Shares") thereby enhancing a long-term mutuality of interest between such
directors and shareholders.
Section 2. Definitions
- -----------------------
When used in this Plan, the following terms shall have the
definitions set forth in this Section: "Board" shall mean the Board of Directors
of the Corporation.
"Change in Control" shall mean (i) the occurrence of any
merger, consolidation, sale of assets, liquidation or reorganization (other than
a merger, consolidation or combination in which the Corporation is the
continuing corporation and which does not result in its outstanding stock being
converted into or exchanged for different securities, cash or other property, or
any combination thereof) which has been approved by Corporation's stockholders
holding at least 50% of the voting stock, or (ii) the first purchase of Common
Shares pursuant to a tender or exchange offer (other than an offer by the
Corporation any of its subsidiaries, any employee benefit plan maintained by the
Corporation, or any of its subsidiaries).
"Committee" shall mean the Committee on Directors of the
Board.
"Common Shares" shall mean the Common Shares of the
Corporation.
"Corporation" shall mean Phelps Dodge Corporation.
"Director" shall mean any member of the Board regardless of
whether an Eligible Director.
"Disability" shall mean the inability of an Eligible Director
to perform his or her duties for a period of at least 180 days due to mental or
physical infirmity, as determined by the Corporation's policies.
"Eligible Director" shall mean a Director who is not an
employee of the Corporation or any Subsidiary.
"Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended.
"Fair Market Value" shall mean the average of high and low
prices of a Common Share on the New York Stock Exchange on the date of
determination or, if no sale of Common Shares is recorded on such date, then on
the next preceding day on which there was such a sale.
"Grant" shall mean a grant of Units under Section 4.
"Subsidiary" shall mean any entity of which the Corporation
possesses directly or indirectly fifty percent (50%) or more of the total
combined voting power of all classes of stock of such entity.
"Termination" shall mean any termination (whether voluntary or
involuntary) of an Eligible Director's service as a Director.
"Unit" shall mean a contractual obligation of the Corporation
to deliver a Common Share or pay cash based on the Fair Market Value of a Common
Share to an Eligible Director or the beneficiary or estate of such Eligible
Director as provided herein.
Section 3. Units
- -----------------
(a) Unit Awards. On each January 1 during the term of the
Plan, each Eligible Director serving as a Director on such date who has been a
Director continuously since the prior November 15 shall be awarded 300 Units.
(b) Delivery of Common Shares. Subject to the satisfaction of
the vesting requirements set forth in Section 4 and except as provided in (c)
and (d) below, all Common Shares that are subject to Units credited to an
Eligible Director shall be delivered to such Eligible Director and transferred
on the books of the Company as of the effective date of such Director's
Termination.
(c) Payment Upon Death. In the event of the death of an
Eligible Director prior to full satisfaction of the Eligible Director's rights
with respect to his or her Units, the Corporation shall pay to the beneficiary
designated by the Eligible Director on a form provided by the Corporation, or,
in the absence of such designation, to the Eligible Director's estate, cash in
an aggregate amount equal to the product of (i) the number of Units standing to
such Eligible Director's credit at the time of Termination multiplied by (ii)
the Fair Market Value of the date of Termination.
(d) Change in Control. Notwithstanding the foregoing, upon the
occurrence of a Change in Control, the Corporation shall pay an Eligible
Director (or, in the event of the death of an Eligible Director following a
Change in Control, the beneficiary or estate determined pursuant to (c) above),
not later than 30 days after the Change in Control occurs, cash in an aggregate
amount equal to the product of (i) the number of Units credited to such Eligible
Director at the time of the Change in Control multiplied by (ii) the Fair Market
Value on the date of the Change in Control.
(e) Satisfaction of Corporation's Obligation. Upon the
delivery of a Common Share (or the payment of cash with respect to a whole or
fractional Common Share) pursuant to the Plan, the corresponding Unit (or
fraction thereof) shall be canceled and be of no further force or effect.
(f) Dividend Equivalents. Whenever a dividend other than a
dividend payable in the form of the Corporation's Common Shares is declared with
respect to the Corporation's Common Shares, the number of Units credited to an
Eligible Director shall be increased by the number of Units determined by
dividing (i) the product of (A) the number of Units standing to such Eligible
Director's credit on the related dividend record date and (B) the amount of any
cash dividend declared by the Corporation on a Common Share (or, in the case of
any dividend distributable in property other than Common Shares, the per share
value of such dividend, as determined by the Corporation for purposes of income
tax reporting) by (ii) the Fair Market Value on the related dividend payment
date. In the case of any dividend declared on the Corporation's Common Shares
which is payable in Common Shares, each Eligible Director shall be credited with
an additional number of Units equal to the product of (i) the number of Units
standing to such Eligible Director's credit on the related dividend record date
and (ii) the number of Common Shares (including any fraction thereof)
distributable as a dividend on a Common Share.
Section 4. Vesting
- -------------------
(a) Vesting Schedule. One half of the Units awarded each year
pursuant to Section 3 (150 Units) will be vested as of the date of Grant. The
remainder of the Units awarded each year (150 Units) will vest on the day after
the Annual Meeting of Shareholders for such year provided that, the Eligible
Director is serving as a Director on such date. Except as otherwise provided in
(b) below, any unvested Units credited to an Eligible Director as of such
Eligible Director's Termination shall be immediately canceled.
(b) Vesting upon Change in Control, Death or Disability. In
the event of a Change in Control, or an Eligible Director's Termination as a
result of death or Disability, all Units credited to an Eligible Director
pursuant to this Plan shall be immediately vested.
Section 5. Adjustment for Corporate Transactions
- -------------------------------------------------
In the event that any recapitalization, reorganization,
merger, consolidation, split-up, spin-off, combination, exchange of shares,
warrants or rights offering to purchase Common Shares at a price substantially
below fair market value, or other similar event affects the Common Shares such
that an adjustment is required to preserve, or to prevent enlargement of, the
benefits or potential benefits made available under the Plan, then the Board
shall adjust the number and kind of shares which thereafter may be awarded under
the Plan and the number of Units to be granted annually to each Eligible
Director under the Plan.
Section 6. Administration
- --------------------------
The Plan shall be administered by the Committee. Subject to
the provisions of the Plan, the Committee shall have plenary authority to
interpret the Plan, to prescribe, amend and rescind rules and regulations
relating to it, and to determine the terms and provisions of the awards made
pursuant to the Plan and to make all other determinations necessary or advisable
for the administration of the Plan provided, however, that the Plan shall be
administered such that the transactions contemplated hereunder will continue to
qualify for the exemptive relief available under Rule 16b-3 of the Exchange Act.
Section 7. Amendment and Termination
- -------------------------------------
The Board may suspend, revise, amend or discontinue the Plan
at any time; provided that, no such action may materially and adversely affect
any rights of an Eligible Director under any Grant made pursuant to the Plan
without such Director's consent. Unless the Board otherwise specifies at the
time of such termination, a termination of the Plan will not result in a
distribution with respect to the Units then credited to an Eligible Director
under the Plan.
Section 8. Effective Date of the Plan
- --------------------------------------
The Plan shall be effective as of January 1, 1997, and shall
terminate as of December 31, 2006, unless extended by the Board or terminated at
an earlier date pursuant to Section 7 of the Plan.
Section 9. Governing Law
- -------------------------
The Plan shall be construed in all respects under the laws of
the State of New York.
Section 10. General Provisions
- ------------------------------
(a) Nontransferable Grants. Grants made under the Plan may not
be assigned or transferred, in whole or in part, either directly or by operation
of law (except in the event of an Eligible Director's death by will or
applicable laws of descent and distribution), including, but not by way of
limitation, by execution, levy, garnishment, attachment, pledge, bankruptcy or
in any other manner, and no such right or interest of any Eligible Director in
the Plan shall be subject to any obligation or liability of such Eligible
Director.
(b) No Right to Serve as a Director. The Plan shall not impose
any obligations on the Corporation to retain any Eligible Director as a Director
nor shall it impose any obligation on the part of any Eligible Director to
remain as a Director of the Corporation.
(c) No Right to Particular Assets. Nothing contained in the
Plan and no action taken pursuant to the Plan shall create or be construed to
create a trust of any kind or any fiduciary relationship between the Corporation
and any Eligible Director, the executor, administrator or other personal
representative or designated beneficiary of such Eligible Director, or any other
persons. Any reserves that may be established by the Corporation in connection
with Units granted under the Plan shall continue to be treated as the assets of
the Corporation for Federal income tax purposes and remain subject to the claims
of the Corporation's creditors. To the extent that any Eligible Director or the
executor, administrator, or other personal representative of such Eligible
Director, acquires a right to receive any payment from the Corporation pursuant
to the Plan, such right shall be no greater than the right of an unsecured
general creditor of the Corporation.
(d) No Rights as Shareholder. An Eligible Director shall have
no rights as a shareholder of the Corporation with respect to any Units granted
pursuant to the Plan unless and until Common Shares are delivered pursuant to
Section 3 above.
(e) Limitations on Liability. Neither the establishment of the
Plan nor any modifications thereof nor the creation of any account under the
Plan nor the payment of any benefits shall be construed as giving to any
participant or other person any legal or equitable right against the Corporation
(or any person connected therewith) except as provided by law or any Plan
provision. In no event shall the Corporation or any person connected therewith
be liable to any person for the failure of any participant or other person to be
entitled to any particular tax consequences with respect to the Plan or any
contribution thereto or any distributions therefrom.
(f) Non-Exclusivity. The adoption of the Plan by the Board
shall not be construed as creating any limitations on the power of the Board to
adopt such other compensatory arrangements as it may deem desirable.
(g) No Limit on Corporate Action. The existence of the Plan
and the Units granted hereunder shall not affect in any way the right or power
of the Board or the shareholders of the Corporation to make or authorize any
adjustment, recapitalization, reorganization or other change in the
Corporation's capital structure or its business, any merger or consolidation of
the Corporation, any issue of bonds, debentures, preferred or prior preference
stocks ahead of or affecting Common Stock, the dissolution or liquidation of the
Corporation or any sale or transfer of all or part of its assets or business, or
any other corporate act or proceeding.
(h) Listing of Common Shares and Related Matters. If at any
time the Board shall determine in its discretion that the listing, registration
or qualification of the Common Shares covered by the Plan upon any national
securities exchange or under any state or federal law, or the consent or
approval of any governmental regulatory body, is necessary or desirable as a
condition of, or in connection with, the delivery of Common Shares under the
Plan, no Common Shares will be delivered unless and until such listing,
registration, qualification, consent or approval shall have been effected or
obtained, or otherwise provided for, free of any conditions not acceptable to
the Board.
(i) Severability of Provisions. If any provision of the Plan
shall be held invalid or unenforceable, such invalidity or unenforceability
shall not affect any other provisions hereof, and the Plan shall be construed
and enforced as if such provision had not been included.
(j) Incapacity. Any benefit payable to or for the benefit of a
minor, an incompetent person or other person incapable of receipting therefor
shall be deemed paid when paid to such person's guardian or to the party
providing or reasonably appearing to provide for the care of such person, and
such payment shall fully discharge any liability or obligation of the Board, the
Corporation and all other parties with respect thereto.
(k) Headings and Captions. The headings and captions herein
are provided for reference and convenience only, shall not be considered part of
the Plan, and shall not be employed in the construction of the Plan.
PHELPS DODGE CORPORATION AND SUBSIDIARIES
Exhibit 12
COMPUTATION OF TOTAL DEBT TO TOTAL CAPITALIZATION
(Dollars in thousands)
December 31,
-------------------------------------
1996 1995 1994
---- ---- ----
Short-term debt $ 66,500 66,600 49,300
Current portion of long-term debt 38,200 16,800 25,300
Long-term debt 554,600 613,100 622,300
--------- --------- ---------
Total debt 659,300 696,500 696,900
Minority interest in subsidiaries 85,500 73,300 65,300
Common shareholders' equity 2,755,900 2,677,700 2,187,600
--------- --------- ---------
Total capitalization $ 3,500,700 3,447,500 2,949,800
========= ========= =========
Ratio of total debt to total
capitalization 18.8% 20.2% 23.6%
========= ========= =========
PHELPS DODGE CORPORATION AND CONSOLIDATED SUBSIDIARIES
Exhibit 21
LIST OF SUBSIDIARIES AND INVESTMENTS
- --------------------------------------------------------------------------------
Registrant:
Phelps Dodge Corporation (New York). The Registrant has no parent.
Registrant's
percent of
voting power
------------
CONSOLIDATED SUBSIDIARIES:
Accuride Canada Inc. (Ontario) 100.0
Accuride Corporation (Delaware) 100.0
Aislamientos Plasticos, C.A. (Venezuela) 80.1
Alambres y Cables de Panama, S.A. (Panama) 78.1
Alambres y Cables Venezolanos, C.A. (Venezuela) 80.1
Burro Chief Copper Company (Delaware) 100.0
Cables Electricos Ecuatorianos, C.A. (Ecuador) 67.1
Cahosa, S.A. (Panama) 78.1
Cobre Cerrillos Sociedad Anonima (Chile) 90.0
Cocesa Ingenieria y Construccion, S.A. (Chile) 63.0
Columbian Carbon Deutschland GmbH (Germany) 100.0
Columbian Carbon Europa S.r.l. (Italy) 100.0
Columbian Carbon International (France) S.A. (France) 100.0
Columbian Carbon Philippines, Inc. (Philippines) 88.2
Columbian Carbon Spain, S.A. (Spain) 100.0
Columbian Chemicals Canada Ltd. (Ontario) 100.0
Columbian Chemicals Company (Delaware) 100.0
Columbian Chemicals Europa GmbH (Germany) 100.0
Columbian International Chemicals Corporation (Delaware) 100.0
Columbian International Trading Company (Delaware) 100.0
Columbian Technology Company (Delaware) 100.0
Columbian Tiszai Carbon Ltd. (Hungary) 60.0
Columbian (U.K.) Limited (United Kingdom) 100.0
Compania Contractual Minera Candelaria (Chile) 80.0
Compania Contractual Minera Ojos del Salado (Chile) 100.0
Conductores y Aluminio C.A. (Venezuela) 80.1
CONDUCEN, S.A. (Costa Rica) 75.4
Conductores Electricos de Centro America, Sociedad Anonima
(El Salvador) 57.6
Dodge & James Insurance Company, Ltd. (Bermuda) 100.0
Electroconductores de Honduras, S.A. de C.V. (Honduras) 60.5
Elektrodraht Mureck, Phelps Dodge Eldra GmbH (Austria) 51.0
Hudson Wire Company dba Hudson International Conductors
(New York) 100.0
Industria de Conductores Electricos, C.A. (Venezuela) 80.1
Metals Fabricators of Zambia Limited (Zambia) 51.0
Nesor Alloy Corporation (New Jersey) 100.0
PD Candelaria, Inc. (Delaware) 100.0
PD Ojos del Salado, Inc. (Delaware) 100.0
Phelps Dodge Chino, Inc. (Delaware) 100.0
Phelps Dodge Industries GmbH (Austria) 98.0
Phelps Dodge Industries, Inc. (Delaware) 100.0
Phelps Dodge International Corporation (Delaware) 100.0
Phelps Dodge Mining (Pty) Limited (South Africa) 100.0
Phelps Dodge Mining Services, Inc. (Delaware) 100.0
Phelps Dodge Morenci, Inc. (Delaware) 100.0
Phelps Dodge Overseas Capital Corporation (Delaware) 100.0
Phelps Dodge Refining Corporation (New York) 100.0
Phelps Dodge Thailand Limited (Thailand) 55.5
Phelps Dodge Wire and Cable Holdings de Mexico, S.A. de C.V.
(Mexico) 100.0
Phelps Dodge Yantai China Holdings, Inc. (China) 66.7
Sevalco Limited (United Kingdom) 100.0
Seven-Up Pete Joint Venture (an Arizona partnership) 72.3
INVESTMENTS CARRIED ON AN EQUITY BASIS:
AOT Inc. (Delaware) 50.0
Black Mountain Mineral Development Company (Proprietary)
Limited (South Africa) (Parent - the Gold Fields of South
Africa group controls 55.4% of the voting stock) 44.6
Columbian Carbon Japan Ltd. (Japan) 50.0
Keystone Electric Wire and Cable Company Limited (Hong Kong) 20.0
PDTL Trading Company Limited (Thailand) 40.0
Phelps Dodge Philippines, Inc. (Philippines) 40.0
SPD Magnet Wire Company (Delaware) 50.0
Summarized financial information is provided for these and other companies (see
Note 3 to the Consolidated Financial Statements of the Corporation contained in
this Form 10-K) pursuant to Article 3 - General Instructions as to Financial
Statements.
Omitted from this listing are subsidiaries which, considered in the aggregate as
a single subsidiary, would not constitute a significant subsidiary.
Exhibit 23
Consent of Independent Accountants
We hereby consent to the incorporation by reference in the Prospectus
constituting part of the Registration Statement on Form S-3 (No. 33-44380) and
in the Registration Statements on Form S-8 (Nos. 33-26442, 33-6141, 33-26443,
33-29144, 33-19012, 2-67317, 33-34363, 33-34362 and 33-62648) of Phelps Dodge
Corporation of our report dated January 15, 1997 appearing in this Form 10-K. We
also consent to the incorporation by reference of our report on the Financial
Statement Schedule, which appears in this Form 10-K.
PRICE WATERHOUSE LLP
Phoenix, Arizona
March 14, 1997
Exhibit 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned constitutes and
appoints Douglas C. Yearley, Thomas M. St. Clair and Robert C. Swan and each of
them his true and lawful attorney-in-fact and agent, with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities:
Annual Report For the Year Ended December 31, 1996 of Phelps Dodge Corporation
on Form 10-K
(1) to sign the Annual Report for the fiscal year ended
December 31, 1996 of Phelps Dodge Corporation on Form 10-K ("1996 Form
10-K") to be filed under the Securities Exchange Act of 1934, as
amended, and any and all amendments to such 1996 Form 10-K;
(2) to file such 1996 Form 10-K (and any and all such
amendments) with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission; and
(3) to take such other action as may be deemed necessary or
appropriate in connection with such 1996 Form 10-K;
as fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents of any of
them, or their or his substitute or substitutes, may lawfully do or cause to be
done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney
this 10th day of January, 1997.
Robert N. Burt
------------------------------
Robert N. Burt
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned constitutes and
appoints Douglas C. Yearley, Thomas M. St. Clair and Robert C. Swan and each of
them his true and lawful attorney-in-fact and agent, with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities:
Annual Report For the Year Ended December 31, 1996 of Phelps Dodge Corporation
on Form 10-K
(1) to sign the Annual Report for the fiscal year ended
December 31, 1996 of Phelps Dodge Corporation on Form 10-K ("1996 Form
10-K") to be filed under the Securities Exchange Act of 1934, as
amended, and any and all amendments to such 1996 Form 10-K;
(2) to file such 1996 Form 10-K (and any and all such
amendments) with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission; and
(3) to take such other action as may be deemed necessary or
appropriate in connection with such 1996 Form 10-K;
as fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents of any of
them, or their or his substitute or substitutes, may lawfully do or cause to be
done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney
this 8th day of January, 1997.
Paul W. Douglas
------------------------------
Paul W. Douglas
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned constitutes and
appoints Douglas C. Yearley, Thomas M. St. Clair and Robert C. Swan and each of
them his true and lawful attorney-in-fact and agent, with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities:
Annual Report For the Year Ended December 31, 1996 of Phelps Dodge Corporation
on Form 10-K
(1) to sign the Annual Report for the fiscal year ended
December 31, 1996 of Phelps Dodge Corporation on Form 10-K ("1996 Form
10-K") to be filed under the Securities Exchange Act of 1934, as
amended, and any and all amendments to such 1996 Form 10-K;
(2) to file such 1996 Form 10-K (and any and all such
amendments) with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission; and
(3) to take such other action as may be deemed necessary or
appropriate in connection with such 1996 Form 10-K;
as fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents of any of
them, or their or his substitute or substitutes, may lawfully do or cause to be
done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney
this 8th day of January, 1997.
William A. Franke
---------------------------
William A. Franke
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned constitutes and
appoints Douglas C. Yearley, Thomas M. St. Clair and Robert C. Swan and each of
them his true and lawful attorney-in-fact and agent, with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities:
Annual Report For the Year Ended December 31, 1996 of Phelps Dodge Corporation
on Form 10-K
(1) to sign the Annual Report for the fiscal year ended
December 31, 1996 of Phelps Dodge Corporation on Form 10-K ("1996 Form
10-K") to be filed under the Securities Exchange Act of 1934, as
amended, and any and all amendments to such 1996 Form 10-K;
(2) to file such 1996 Form 10-K (and any and all such
amendments) with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission; and
(3) to take such other action as may be deemed necessary or
appropriate in connection with such 1996 Form 10-K;
as fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents of any of
them, or their or his substitute or substitutes, may lawfully do or cause to be
done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney
this 10th day of January, 1997.
Paul Hazen
-----------------------------
Paul Hazen
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned constitutes and
appoints Douglas C. Yearley, Thomas M. St. Clair and Robert C. Swan and each of
them her true and lawful attorney-in-fact and agent, with full power of
substitution and resubstitution, for her and in her name, place and stead, in
any and all capacities:
Annual Report For the Year Ended December 31, 1996 of Phelps Dodge Corporation
on Form 10-K
(1) to sign the Annual Report for the fiscal year ended
December 31, 1996 of Phelps Dodge Corporation on Form 10-K ("1996 Form
10-K") to be filed under the Securities Exchange Act of 1934, as
amended, and any and all amendments to such 1996 Form 10-K;
(2) to file such 1996 Form 10-K (and any and all such
amendments) with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission; and
(3) to take such other action as may be deemed necessary or
appropriate in connection with such 1996 Form 10-K;
as fully to all intents and purposes as she might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents of any of
them, or their or her substitute or substitutes, may lawfully do or cause to be
done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney
this 10th day of January, 1997.
Marie L. Knowles
------------------------------
Marie L. Knowles
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned constitutes and
appoints Douglas C. Yearley, Thomas M. St. Clair and Robert C. Swan and each of
them his true and lawful attorney-in-fact and agent, with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities:
Annual Report For the Year Ended December 31, 1996 of Phelps Dodge Corporation
on Form 10-K
(1) to sign the Annual Report for the fiscal year ended
December 31, 1996 of Phelps Dodge Corporation on Form 10-K ("1996 Form
10-K") to be filed under the Securities Exchange Act of 1934, as
amended, and any and all amendments to such 1996 Form 10-K;
(2) to file such 1996 Form 10-K (and any and all such
amendments) with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission; and
(3) to take such other action as may be deemed necessary or
appropriate in connection with such 1996 Form 10-K;
as fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents of any of
them, or their or his substitute or substitutes, may lawfully do or cause to be
done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney
this 9th day of January, 1997.
Robert D. Krebs
------------------------------
Robert D. Krebs
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned constitutes and
appoints Douglas C. Yearley, Thomas M. St. Clair and Robert C. Swan and each of
them his true and lawful attorney-in-fact and agent, with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities:
Annual Report For the Year Ended December 31, 1996 of Phelps Dodge Corporation
on Form 10-K
(1) to sign the Annual Report for the fiscal year ended
December 31, 1996 of Phelps Dodge Corporation on Form 10-K ("1996 Form
10-K") to be filed under the Securities Exchange Act of 1934, as
amended, and any and all amendments to such 1996 Form 10-K;
(2) to file such 1996 Form 10-K (and any and all such
amendments) with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission; and
(3) to take such other action as may be deemed necessary or
appropriate in connection with such 1996 Form 10-K;
as fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents of any of
them, or their or his substitute or substitutes, may lawfully do or cause to be
done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney
this 10th day of January, 1997.
Southwood J. Morcott
------------------------------
Southwood J. Morcott
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned constitutes and
appoints Douglas C. Yearley, Thomas M. St. Clair and Robert C. Swan and each of
them his true and lawful attorney-in-fact and agent, with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities:
Annual Report For the Year Ended December 31, 1996 of Phelps Dodge Corporation
on Form 10-K
(1) to sign the Annual Report for the fiscal year ended
December 31, 1996 of Phelps Dodge Corporation on Form 10-K ("1996 Form
10-K") to be filed under the Securities Exchange Act of 1934, as
amended, and any and all amendments to such 1996 Form 10-K;
(2) to file such 1996 Form 10-K (and any and all such
amendments) with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission; and
(3) to take such other action as may be deemed necessary or
appropriate in connection with such 1996 Form 10-K;
as fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents of any of
them, or their or his substitute or substitutes, may lawfully do or cause to be
done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney
this 27th day of January, 1997.
Gordon R. Parker
------------------------------
Gordon R. Parker
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned constitutes and
appoints Douglas C. Yearley, Thomas M. St. Clair and Robert C. Swan and each of
them his true and lawful attorney-in-fact and agent, with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities:
Annual Report For the Year Ended December 31, 1996 of Phelps Dodge Corporation
on Form 10-K
(1) to sign the Annual Report for the fiscal year ended
December 31, 1996 of Phelps Dodge Corporation on Form 10-K ("1996 Form
10-K") to be filed under the Securities Exchange Act of 1934, as
amended, and any and all amendments to such 1996 Form 10-K;
(2) to file such 1996 Form 10-K (and any and all such
amendments) with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission; and
(3) to take such other action as may be deemed necessary or
appropriate in connection with such 1996 Form 10-K;
as fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents of any of
them, or their or his substitute or substitutes, may lawfully do or cause to be
done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney
this 11th day of January, 1997.
J. Steven Whisler
------------------------------
J. Steven Whisler
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned constitutes and
appoints Douglas C. Yearley, Thomas M. St. Clair and Robert C. Swan and each of
them his true and lawful attorney-in-fact and agent, with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities:
Annual Report For the Year Ended December 31, 1996 of Phelps Dodge Corporation
on Form 10-K
(1) to sign the Annual Report for the fiscal year ended
December 31, 1996 of Phelps Dodge Corporation on Form 10-K ("1996 Form
10-K") to be filed under the Securities Exchange Act of 1934, as
amended, and any and all amendments to such 1996 Form 10-K;
(2) to file such 1996 Form 10-K (and any and all such
amendments) with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission; and
(3) to take such other action as may be deemed necessary or
appropriate in connection with such 1996 Form 10-K;
as fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents of any of
them, or their or his substitute or substitutes, may lawfully do or cause to be
done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney
this 10th day of January, 1997.
Douglas C. Yearley
------------------------------
Douglas C. Yearley
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL
INFORMATION EXTRACTED FROM THE CONSOLIDATED
BALANCE SHEET AT DECEMBER 31, 1996 AND THE RELATED
CONSOLIDATED STATEMENTS OF OPERATIONS AND OF CASH
FLOWS FOR THE YEAR ENDED DECEMBER 31, 1996 OF
PHELPS DODGE CORPORATION AND ITS SUBSIDIARIES AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<EXCHANGE-RATE> 1
<CASH> 470,100
<SECURITIES> 0
<RECEIVABLES> 503,300
<ALLOWANCES> 14,200
<INVENTORY> 293,000
<CURRENT-ASSETS> 1,421,500
<PP&E> 5,205,900
<DEPRECIATION> 2,185,400
<TOTAL-ASSETS> 4,816,400
<CURRENT-LIABILITIES> 685,900
<BONDS> 554,600
0
0
<COMMON> 404,400
<OTHER-SE> 2,351,500
<TOTAL-LIABILITY-AND-EQUITY> 4,816,400
<SALES> 3,786,600
<TOTAL-REVENUES> 3,786,600
<CGS> 2,604,400
<TOTAL-COSTS> 2,604,400
<OTHER-EXPENSES> 343,400
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 66,100
<INCOME-PRETAX> 687,500
<INCOME-TAX> 220,000
<INCOME-CONTINUING> 461,800
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 461,800
<EPS-PRIMARY> 6.97
<EPS-DILUTED> 6.97
</TABLE>
